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Implementing an ESOP:

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What You Need to Know

Starting Your ESOP Right

One key to establishing a successful employee-owned company is starting your ESOP right — but there’s no need to be intimidated by regulatory, accounting, and legal requirements when you work with a team of seasoned, highly qualified ESOP experts.

Launching an ESOP involves multiple steps. Depending on the company’s readiness, the level of guidance and expertise of the consulting team, and the objectives and timeline of the selling shareholder, this process can take from as little as 90 days to more than a year, but the typical timeline is six to 12 months.

How to get started with an ESOP

The smartest way to begin is to consult with one of our experts who can guide you efficiently through the ESOP formation process and help ensure your ESOP is set up to best meet your objectives. 

Schedule a Free ESOP Readiness Assessment
Here’s how the ESOP transition works:
Stage 1

Explore Current State

After you've completed our free ESOP Readiness Assessment Worksheet, we will reach out to discuss the worksheet with you. This meeting will give you a better understanding of whether your company meets certain general criteria that point to a strong likelihood of success. Company size, profitability, and other factors are considered.

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Stage 1
Stage 2

Evaluate

After a no-cost initial assessment, our experts start your ESOP development process with a comprehensive feasibility study. This study gathers all the information needed to make key decisions about corporate structure, the sale transaction and financing, plan design, regulatory compliance, ongoing administration, and more — so you can have confidence in the future of your ESOP.

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Stage 2
Stage 3

Prepare for Sale

The ESOP Partners team provides guidance to you and your professional service providers (such as accountants, tax advisors, human resources services, attorneys, lenders, etc.) to prepare in advance of the sale.

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Stage 3
Stage 4

Establish and Implement

Establishing your ESOP trust and implementing the plan under expert guidance helps ensure your ESOP gets off to a strong start.

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Stage 4
Stage 5

Administration

Correctly administering your ESOP keeps you in compliance with the Employee Retirement Income Security Act (ERISA) and corresponding regulatory requirements covered by the Internal Revenue Code and Department of Labor rules. ESOP Partners offers a full suite of third-party administration (TPA) services, as well as additional administrative assistance for special circumstances that may arise.

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Stage 5
Stage 6

Sustain

Ensuring your ESOP meets your long-term objectives demands ongoing oversight and care, including sustainability studies to help plan for future repurchase obligations, plan changes, and ongoing communications with plan participants.

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Stage 6

Why would an owner sell to an ESOP?

Selling shareholders have many reasons for choosing to transition company ownership to an ESOP. We help business owners:

1

Access liquidity from their business equity, and an ESOP creates a ready buyer for fair market value

Access liquidity from their business equity, and an ESOP creates a ready buyer for fair market value
2

Retain control over the day-to-day management of operations

Retain control over the day-to-day management of operations
3

Achieve after-tax net sale proceeds that can exceed results of a third-party sale

Achieve after-tax net sale proceeds that can exceed results of a third-party sale
4

Experience a predictable path to sale

Experience a predictable path to sale
5

Learn about the option of deferring taxes on the sale of their shares

Learn about the option of deferring taxes on the sale of their shares
6

Take advantage of the flexibility to sell part, but not all, of their ownership equity, if they choose

Take advantage of the flexibility to sell part, but not all, of their ownership equity, if they choose
7

Use an ESOP’s tax benefits to support healthy free cash flow to grow and increase the value of their business over time

Use an ESOP’s tax benefits to support healthy free cash flow to grow and increase the value of their business over time
8

Exercise careful succession planning that protects their business legacy

Exercise careful succession planning that protects their business legacy
9

Offer a valuable benefit to attract great candidates, retain strong employees, and reward employee loyalty

Offer a valuable benefit to attract great candidates, retain strong employees, and reward employee loyalty
10

Encourage greater employee productivity and motivation

Encourage greater employee productivity and motivation
11

Align employee values with their company’s vision and goals

Align employee values with their company’s vision and goals
12

Nurture a strong, positive workplace culture of participatory management

Nurture a strong, positive workplace culture of participatory management

How much does it cost to set up an ESOP?

It’s probably not surprising that the expenses associated with establishing an ESOP company vary widely. ESOP Partners has found that in most cases, profitable companies find that the tax savings offset some or all of these costs.

In addition to tax savings, ESOP companies that experience productivity and profitability growth see that as a solid return on the company’s investment in the plan.

It’s easy to find out if an ESOP fits your needs:

Schedule a Free ESOP Readiness Assessment