When Indianapolis-based BSA LifeStructures decided to make a change in its ownership structure, it didn’t have to look far to find its new owners.
Effective Nov. 15, the architectural and engineering firm became a 100 percent employee-owned company. The ownership structure, also known as an ESOP, means that all 250 employees are now part-owners in the company, with stock benefits they earn over time and can redeem upon retirement.
Of those 250 employees, 150 of them work in Indianapolis. The others work at one of six offices: Atlanta; Austin, Texas; Denver; Kansas City, Kansas; Raleigh, North Carolina; and St. Louis.
BSA is the Indianapolis area's largest architectural firm in terms of local architectural billings, according to IBJ research. That figure was $24.4 million in 2016. The company expects total revenue of $53 million this year.
BSA’s board of directors and leadership will remain the same under the ESOP structure, said Kevin Token, BSA’s chairman and CEO.
Token said adopting an ESOP structure made sense for the company, which prior to the latest move was co-owned by 73 employee shareholders.
“It’s kind of the next natural progression to involve everybody on the ownership level,” Token told IBJ.
BSA was founded in 1975. In its early years, the company was owned by a handful of employees, including the company’s founders, Token said. When those early stockholders neared retirement, the company brought in additional employee owners.
“By the late '90s, we had about 40 owners in the company, and then we just kept that tradition going," Token said.
Under the previous ownership structure, employee-owners invested their own money into the company and got returns based on the company’s performance. In transitioning to the ESOP, BSA bought out those owners’ shares using a combination of cash on hand plus borrowing, Token said.
Under the ESOP arrangement, employees accrue stock benefits over time without having to put in any of their own money.
Moving to an ESOP plan carries several benefits for BSA, among them a significant tax advantage.
Previously, BSA’s shareholders were responsible for paying the company’s income taxes, and the company gave shareholders a tax bonus in order to do so. But ESOPs are tax-exempt.
“When a corporation is 100 percent owned by an ESOP, as is the case with BSA, effectively you’re [as a company] not paying any state or federal income taxes,” said attorney Alex Mounts, who helped BSA with its ESOP transition and who heads the employee benefits practice group at Indianapolis-based law firm Krieg DeVault LLP.
Tax liability is shouldered by shareholders as they cash out of the plan, similar to the way pre-tax contributions work in a 401(k) plan.
BSA expects to see other benefits from its new ownership structure, Token said.
The company plans to share more financial information with its employees and will provide financial literacy training so they better understand the company’s workings and how their actions affect the bottom line.
“That transparency and that sharing of knowledge and the resultant employee empowerment is just going to be really powerful,” Token said.
ESOPs are not all that common. According to the National Center for Employee Ownership, just 6,717 firms were ESOPs as of 2014, including 171 in Indiana.
One disadvantage to ESOPs, Mounts said, is that they are complex arrangements that can be difficult to explain to employees.
However, Mounts said, the arrangement is becoming more popular, especially as baby-boomer business owners plan their retirements.
Owners who don’t want to sell out to a competitor or to an investment firm can use an ESOP as a form of succession planning, Mounts said.
“It is another alternative to facilitate a transition of a business,” Mounts said. “We’re just seeing a lot of interest around the country.”