An ESOP (Employee Stock Ownership Plan) is a financial vehicle, chock full of advantages for both Shareholders and their privately held C- Corporation business entities, that can be used in multiple ways that benefit both Owner/Shareholders & their Corporations:

  • Use pre-tax dollars to buy capital goods, as well as to acquire and/or to merge with other Corporations.
  • Refinance existing company debt and fully deduct loan principal, interest repayments, as well as dividends used to reduce ESOP debt.
  • Shift loan collateral outside the company while also obtaining improved loan terms.
  • Increase Corporate net & appraised value when transferring qualified plans into an ESOP.
  • Avoid capital gains tax with the sale of highly appreciated company stock to an ESOP while retaining control.
  • Shift funding of a selling Owner/Shareholders retirement to outside the Corporation, while affording greater investment diversification, liquidity, and flexibility in personal financial & estate planning.
  • Exit a business, smart – “going public privately” – transferring selling Shareholders ownership, while shifting voting rights to like minded stakeholder employees.

In technical terms an ESOP1 is a tax qualified, defined contribution plan, primarily distinguished from other such plans in the following two ways:

  • It is permitted to invest exclusively in the stock of its “own” sponsoring Company.
  • It is permitted to borrow.

Is an ESOP a right fit for you? First, some basic parameters would include: a successful business valued over three to four million, and payroll in excess of one million; paying taxes in top marginal bracket; desire to prevent outside take-over of the business; a public corporation wanting to go private, sell off a division, and/or expand employee stock ownership; and a business not heavily in debt but that could benefit by tax favorably refinancing debt.

Establishing an ESOP is a complex process, but one well worth the effort. Let our team work together with you in the design, evaluation, adoption, communication, and servicing of a well structured ESOP. We offer qualified corporations, at no charge, a confidential pre-qualification ESOP feasibility analysis.

1Section 407(d)(6) ERISA-1974 & 401(a), 4975(e), 501(a) IRC-1986, as amended.

For these and other creative capital planning strategies, please contact us today!

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