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When an ESOP Company Is Sold, Who Pays the ESOP Loan?

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When an ESOP company is sold, all of the shares are sold or all of the assets of the company are sold. In this video, we discuss who pays the ESOP loan.

 

The ESOP Loan

It’s easiest to think of an ESOP loan as essentially a mortgage on the ESOP shares. If the stock is sold, the ESOP trustee will pay off the debt and then the net proceeds from the payment of that debt will be the gain on the sale of that stock which goes to the participants accounts.

If the sale of the company is an assets sale followed by a liquidation of the company then the liquidation distribution to the ESOP will be used by the ESOP trustee to pay off the ESOP loan with the remaining profit after the sale of those shares and payment of the loan flowing to the ESOP’s participants’ accounts as profit from the sale. 

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