Benefits of an ESOP to the owner(s)
Benefits of an ESOP to the owner(s)
An ESOP transaction can:
- Potentially result in a tax-free sale with an IRC §1042 election
- Potentially yield more in total after-tax proceeds compared to a third party sale
- Increase certainty of close
- Allow the owner to start the next chapter while preserving their legacy
- Provide the owner the ability to continue managing the company post-sale
- Preserve confidentiality
- Provide an exit alternative when there is a lack of interested buyers
- Be structured as a series of transactions
Benefits of an ESOP to the company
Benefits of an ESOP to the company
An ESOP transaction can:
- Allow for tax-deductible stock and/or cash contributions to the ESOP
- Potentially provide S-Corp ESOP companies the ability to operate federal, and in many cases, state income-tax free
- Provide the ability to acquire other companies in the future using pre-tax dollars
- Potentially increase productivity and retention due to employees' “owner” mentality
- Create opportunities to motivate, retain and recruit key talent
Benefits of an ESOP to the employees / management
Benefits of an ESOP to the employees / management
For employees, an ESOP transaction can:
- Reward employees with tax-deferred retirement benefits
- Provide employees equity in the company without having to invest any of their own cash
For management, an ESOP transaction can:
- Provide a gradual transition for new management to “run” the company
- Allow participation in the ESOP and possibly an executive non-qualified plan providing meaningful wealth building opportunities
