Broadly speaking, employee stock ownership plans (ESOPs) are a great option for companies looking to accomplish one of two goals—succession planning and employee benefits planning. The great thing about an ESOP is that it can often accomplish both of those goals if it’s designed well. Here are some reasons companies choose ESOPs to create better futures for themselves.
Sellers looking to either exit a business or gain liquidity have limited options. One option is a third-party sale to a strategic buyer or a private equity firm. Such buyers may not be available, and if they are, they may not present terms that fit what the sellers want for themselves or their company.
An ESOP allows sellers flexibility. They can smoothly transition out of the business and stay involved until they’re ready to step away. This allows for management continuity, but it also allows owners to maintain a stake if they so choose. This is especially helpful for a family business where there are no family members willing or able to take over the business.
ESOPs also offer considerable tax benefits to selling shareholders. We tailor the ESOP to maximize those tax benefits based on the owner's goals and other factors.
ESOPs offer numerous employee benefits, including management continuity and preventing or forestalling a sale to outsiders. This effectively makes the company—and employees’ jobs—more secure than they might be under third-party ownership. The company is likely to be further strengthened by the demonstrated gains in productivity, growth and profitability seen in ESOP companies.
On a personal level, employees participating in an ESOP get a retirement benefit funded entirely with employer contributions. They can also receive dividends on stock, if available. ESOP participants are generally more dedicated and satisfied employees due to the direct link between the company’s success and their own.
To learn more about why ESOPs appeal to so many business owners and their employees, watch this video.
If you’d like to explore whether an ESOP is right for you, contact us.