Employee Stock Ownership Plans (ESOP) have been around for 35 years, and many well known, national companies have them, but many misconceptions still exist, such as: (1) Employees will directly own the company’s stock [FALSE], or (2) Employees will directly ratify everything from executive compensation to capital spending plans [FALSE], or (3) Employees will have complete access to all of the company’s trade secrets and financial data [FALSE].
Today, there are over 10,000+ ESOP’s in the US covering 10.5 million employees (10% of the US private workforce). Total assets owned by ESOP companies is approximately $675 billion. Well-known examples of ESOP companies include Proctor & Gamble, Anheuser Busch, Sherman Williams, United Airlines, and Publix.
Creating an ESOP trust to purchase your shares in your company can have many advantages for the Seller, the Company, Management and Employees. For example:
Advantages for Selling Shareholder(s)
- Liquid market for shares at fair market value
- Tax deferred (or tax free) sale of company stock
- Qualify for lower capital gains tax rates when paid
- Achieve full or partial liquidity
- Partial sale allows for retaining voting control
- Diversification of assets and net worth
Advantages for Employees
- Provides tax deferred retirement plan
- Equity participation may increase productivity
- Employees build wealth without personal investment
Advantages for Management
- Ensures smooth transition of ownership
- Provides increased ownership opportunities
- Enhances overall morale throughout company
Advantages for Company
- Tax deductible contributions to the ESOP
- Tax deductible dividends paid on ESOP stock
- Provides substantial tax savings
- Ability to use pre-tax dollars to repay debt
Legacy Advisors Group has experience working with ESOP financial advisors, bankers, attorneys, appraisers, etc., and can help you decide if an ESOP is right for your company. To learn more about ESOPs and qualify for a complimentary, preliminary feasibility study, contact me at mertel@lmaallc.com
By: Mike Ertel, Transworld M&A Advisors