Employee Stock Ownership Plans
What Is An ESOP?
An Employee Stock Ownership Plan (ESOP) offers privately held business owners a tax-advantaged alternative to a third-party M&A sale when considering succession planning. With an ESOP, shareholders have the flexibility to sell either the entire business (100%), a majority percentage, or a minority percentage interest to the ESOP, enabling liquidity and ownership transition. Notably, this grants the company’s workforce an indirect ownership stake in the company, referred to as the “plan sponsor,” at no cost to the employees.
Key Benefits of Becoming an ESOP
Business owners are constantly seeking innovative strategies to fuel growth, enhance employee engagement, and secure the long-term success of their businesses. An ESOP stands out as a powerful option that can offer substantial benefits to the business and its employees.
Benefits for Your Business:
- Flexible transaction structures
- Partial or complete exemption from corporate income taxes for S-Corps
- Increased employee engagement and retention
- Ability to maintain control, continuity, and culture
Benefits for Your Employees:
- Valued retirement benefit at no cost
- Opportunity to accumulate wealth and benefit financially from the company’s growth and profitability
- Greater sense of job security, particularly during challenging economic periods
Is an ESOP the Right Option for My Company?
ESOPs have gained popularity in various industries, including construction, government contracting, manufacturing and distribution, and professional services. However, an ESOP is not a universal solution for all companies or selling shareholders. To assess its suitability, factors such as the company’s financial stability, long-term goals, employee culture, and the owner’s desire for liquidity or an exit strategy should be carefully evaluated. These considerations will help determine if an ESOP aligns with the objectives of the business owner and the specific circumstances of the business.
talk with an expertWhy You Should Consider an ESOP
There are many reasons why business owners pursue ESOPs as an ownership transition and liquidity strategy including:
- Potential for significant tax benefits including deferral of capital gains tax and reduction of corporate income tax
- Unable or unwilling to go through a traditional sale of the business to a competitor or other third party
- Looking to sell a portion of the business while maintaining control
- Current management team lacks the financial resources to purchase the business outright
- Looking to provide employees with the economic benefits of stock ownership as a reward and incentive
- Difficulty identifying viable third-party buyers
Our Areas of Expertise
Our specialized professionals serve ESOP clients across the country, assisting plan sponsors and trustees in establishing and maintaining well-designed ESOPs spanning:
- Assessment of strategic alternatives
- Preliminary valuations for shareholders to understand a company’s fair market value
- ESOP feasibility studies
- Debt financing analysis
- Shareholder/Board advisory and investment banking services
- Transaction valuations and fairness opinions on behalf of plan trustees for purchases and sales of stock by the ESOP
- S-Corporation tax opinions for use by the board and financing sources
- Re-leverage or second stage transaction structure, negotiation, and valuation
- Annual valuations on behalf of the plan trustee as required by the Department of Labor
- Plan audit services
- Company sponsor financial statement audit services
- Tax compliance and ESOP accounting assistance
- Fairness opinions
- Merger and acquisition advisory
- Appraisals required for ESOP terminations
The ESOP Advantage: Secure Your Future, Empower Your Team
Unlock business prosperity and heightened employee engagement with our expert-guided ESOP solutions. Connect with SC&H Capital today to explore your specific needs, gain valuable insights, and determine if an ESOP is a perfect fit for your personal and business objectives. No obligations, just possibilities for success.
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