Employee Stock Ownership Plan (ESOP)
For the right situation, ESOPs provide Business Owners with liquidity, a viable exit strategy, and can reward employees and key personnel.
Liquidity for Owners
Creates Relevant Business Valuation
Compensation Tool for Key Employees
Expensive to Create
May Create Additional Debt Burden if Company Borrows to Purchase Company Stock
Available for C and S Corporations
ESOP Structure / Process
1. Companies set up a trust fund for employees
2. Owner Sells / Gifts / Transfer Shares to Trust Fund (if desired, a second, non-voting stock class created)
3. Companies contribute either cash to buy company stock, contribute shares directly to the plan, or have the plan borrow money to buy shares. Employees can purchase shares as well via directed deductions and contributions.
Note: If the plan borrows money, the company makes contributions to the plan to repay the loan. Plan-Contributionsare tax-deductible. Employees pay no tax on the contributions until they receive the stock (leave or retire). They then either sell it on the market or back to the company.
In the right situation, ESOPs can be a valuable succession planning and business tool. Please contact us to confidentially discuss your business and exit strategy options.
Please note, all concepts, strategies, and products mentioned may not be suitable for you or your company. Information provided is not intended to be legal or tax advice. Please consult with your tax and legal advisor for specific tax questions.