When considering succession planning, many business owners are aware of the three most traditional options: sell to an Outsider, sell to an Insider, or what we call a “till death do us part” strategy. However, though it has existed for more than 35 years, an Employee Stock Ownership Plan (ESOP) is an unsung hero of succession planning strategy. While each of the strategies mentioned above can be the best fit based upon a business owner’s situation and goals, few business owners are aware of the ESOP option and its many benefits.

check_icon.png Flexibility A transaction can be structured to meet the goals of the sponsoring company, its shareholders and management.
check_icon.png Minimum After-Tax Sales Proceeds Properly structured, selling shareholders do not pay capital gains tax on sales proceeds.
check_icon.png Seller Diversification Existing shareholders can receive an all-cash partial liquidity event to diversify holdings while still participating in future appreciation of the company’s stock.
check_icon.png Ownership Transition Plan Establish long-term liquidity strategy that allows the remaining shareholders to elect to defer taxes on capital gains from subsequent transactions.
check_icon.png Maintenance of Future Upside In a partial transaction, shareholders can retain a meaningful participation in future increases in equity value.
check_icon.png Wealth Performance Equation Employees accrue significant wealth that is in line with company performance, which aligns the interests of management and employees.
check_icon.png Enhanced Cash Flow Tax savings due to ESOP contributions improve company cash flow; 100 percent ESOP-owned S corporations have “supercharged” tax savings.
check_icon.png Continuity of Governance and Management The ESOP trustee is elected by the Board, and absent fraudulent or negligent activity that it must respond to, does not actively participate in day-to-day management of the business.

Learn More about ESOPS:

PART ONE: What Is An Employee Stock Ownership Plan (ESOP)?