An ESOP can be a vehicle for acquiring another company. Watch our video to learn more.
A lot has been written about using an ESOP as an acquisition vehicle to buy other companies. How that’s done depends upon a number of factors such as whether a company sponsoring the ESOP is a C corporation or a S corporation or whether the owners of the target corporation want to sell their stock in a tax advantaged transaction.
In any of these situations, an ESOP offers the opportunity to use tax deductible dollars to pay for the purchase price of the stock. It could be the acquisition of a target company where the target company establishes an ESOP, the shareholders sell to their ESOP and the companies merge. On the other hand, it could be a 100% S corporation ESOP and since that corporation pays no taxes on its earnings that company will quite simply have additional cash flow due to the tax savings which it uses to buy companies either by buying stock or buying the assets of the target companies.