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How Is an ESOP Used to Raise Capital?

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One option for a company to raise capital is by using an ESOP. Watch our video to learn more.

 

Transcript

An ESOP can raise capital by creating what we call an issuance transaction. In that transaction, the company or the ESOP borrows money from a bank and purchases new shares from the corporation and places those into a suspense account. The corporation thereby has the working capital on its books and can pay off the bank financing by making contributions to the ESOP which allows the ESOP to pay off its loan from the corporation. Debt financing becomes 100% tax-deductible—both the principal and the interest. 

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