Employee stock ownership plans (ESOPs)

Among various business transition options, Employee Stock Ownership Plans (ESOPs) offer a distinct set of advantages. As one of the nation’s leading ESOP advisors, we can guide you through the process to determine if this is the right option for your business.

What is an ESOP?

An Employee Stock Ownership Plan (ESOP) is a qualified retirement plan for employees and a tax-efficient exit strategy for business owners. ESOPs allow owners of closely held businesses to sell part or all of their shares to employees. When structured properly, owners can also manage capital gains taxes associated with the sale.

Benefits of an ESOP to the Company

An ESOP transaction offers multiple advantages, including:

  • The ability to make tax-deductible stock or cash contributions to the ESOP
  • S-Corp ESOP companies may benefit from favorable federal and, in some cases, state tax status
  • Opportunities for future acquisitions using pre-tax dollars
  • Enhanced productivity and retention as employees develop an “owner” mentality
  • Stronger motivation and recruitment of key talent

Benefits of an ESOP the Business Owner 

For business owners, an ESOP can:

  • Potentially yield higher after-tax proceeds compared to a third-party sale
  • Increase the certainty of closing the deal
  • Allow the owner to preserve their legacy while transitioning out
  • Offer the ability to remain involved in company management post-sale
  • Maintain confidentiality throughout the process
  • Provide an exit strategy when other buyers are not interested
  • Be structured as a series of transactions over time

Benefits of an ESOP to Employees and Management

For employees, an ESOP provides:

  • Tax-deferred retirement benefits
  • Ownership in the company without needing to invest personal capital

For management, an ESOP can:

  • Facilitate a gradual transition of leadership to new management
  • Offer wealth-building opportunities through participation in the ESOP or non-qualified plans