A Beginner’s Guide to ESOP’s

When you exit your business, who will carry the torch?  Maybe you have discussed selling the business to a group of key employees.  After all, they know your business better than anyone else and they have a deep interest in its continued success.

But here the deal.  Many of these key people do not have the resources to buy you out.  In most cases the plan ends here.  After all, you cannot give them the money to buy you out…can you?

Actually, an Employee Stock Ownership Plan (ESOP) can allow you to accomplish a transition to your employees because it enables them to borrow the funds to buy you out while seeking tax-efficiency.

Does this mean you will be working for your employees? No. Ownership and control are two related but distinctly different concepts.

First and foremost, an ESOP is a qualified retirement plan similar to a profit sharing plan.  Where it differs from traditional retirement plans is that it invests primarily in company stock.  An ESOP Trust is established to purchase the company using borrowed money to do so.

What are the advantages of an ESOP?  An ESOP can present a compelling way to attract and retain employees.  Thus, retaining a group of motivated management team members.  Employees who stick around are valuable.  They develop an ownership culture that empowers them and may reward them for taking an interest in the company’s performance and success (increases value).

Talk to a qualified CEPA Advisor to determine if this strategy might possibly be a fit for your company.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

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