Esop Primer

What is an ESOP?

Introducing the ESOP as an Ownership Succession Planning Strategy

Traditionally, there have been three options for owners to consider relative to their succession planning: sell to an Outsider, sell to an Insider or what we call a “till death do us part” strategy. Despite the availability of ESOPs as an ownership succession strategy for more than 35 years, few business owners are aware of this option and its many benefits.

Each of the four succession planning strategies mentioned above can be the best fit based upon a business owner’s situation and goals. I will introduce you to ESOPs as an Ownership Succession Strategy.

What is an ESOP?

There are three different parties or constituencies involved in ESOPs and the answer to this question depends upon which constituency’s perspective you consider.

  • To an owner of a closely held company, an ESOP is a way to get money out of his company on a tax-advantaged basis and to transition control of his company to key employees or family (insiders).
  • To the company’s employees, an ESOP is a retirement plan (like a 401k) that allows employees to share in the value of their company.
  • To the Company, an ESOP is a vehicle of corporate finance that offers tax benefits not available anywhere else in the Internal Revenue Code

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