Some Benefits of an ESOP

  • An ESOP creates a tax-sheltered private market for all or part of the shares in a closely held company when entrepreneurs and family business owners want to reduce the risk of having “all their eggs in one basket.”
  • The selling shareholders can usually retain substantial control over the company and maintain their business and personal philosophy even after a company is partially or wholly owned by an ESOP.
  • The selling shareholders can protect the legacy of the business they have built and nurtured by selling to an ESOP instead of to an absentee buyer.
  • An ESOP can protect valued employees from potential layoffs that usually result when third parties purchase closely held companies.
  • The shareholders may be able to postpone or eliminate any capital gains tax on the sale after selling to an ESOP.
  • Repayment of principal on loans used to purchase ESOP shares may be made wholly or in part with pre-tax dollars to reduce the cost of borrowing for both the ESOP purchase of shareholder’s interest and general borrowing.
  • Employees of the ESOP-owned company will have a substantial, tax sheltered retirement benefit that will grow with the company.