The benefits of an ESOP affect the selling shareholder(s), the business as a whole, employees, and even the greater community. How?
Consider these key advantages:
Benefits to the Selling Shareholder(s)
ESOPs are the most tax-efficient method of business ownership transfer — for both the seller and the company
Flexible transaction structuring options make it possible for the selling shareholder to net the same or even more, after taxes, than they would after a third-party sale
In some circumstances, selling shareholders may qualify for a tax-deferred rollover of sale proceeds
As an exit strategy, an ESOP separates the financial transaction from the change in control over the company
ESOPs enable departing owners to leave a legacy of ownership and wealth-building for employees, and to leave a namesake company in their community
Benefits to the ESOP Company
The transition to an ESOP doesn’t require changes to management or leadership at the time of sale; in fact, selling owners can maintain their leadership role as they choose
A 100% ESOP-owned S corporation is currently exempt from federal income tax, as well as most state income taxes, creating a tax advantage that can improve free cash flow
An ESOP is an attractive employee retirement benefit that helps recruit talented candidates and retain quality employees
ESOP-owned C corporations benefit from certain tax deductions
ESOP companies outperform non-ESOP businesses by 2.5% — just by being ESOPs (add a participative management culture and ESOPs outperform their peers by 8–11%)
Employee-owners often embrace an ownership mindset, always looking for ways to innovate, improve productivity, increase profitability, and stay competitive
Money that would otherwise be used to pay corporate income tax can instead be used to fund the purchase of stock for a qualified retirement plan
Benefits to Employees
An ESOP is a qualified retirement plan that requires no financial contribution from the employee
The ESOP is an additional employee retirement plan that makes workers shareholders in the financial rewards of a successful company
Employee ESOP distributions are tax-deferred and can be rolled over into an IRA
An ESOP sale helps the company retain jobs at the ownership transition, unlike third-party sales or M&A transactions
Talk to our experts and see if the benefits of an ESOP are right for you.
