The reputable team of ESOP advisors have been involved with over 100 ESOP transactions nationwide. Few ESOP law firms or lawyers offer the same level of proven experience in Employee Stock Ownership Plan services. The ESOP Plus team advisors are members of the ESOP Association, the National Center for Employee Ownership (NCEO), and the Ohio Employee Ownership Center (OEOC). They provide exceptional legal work for companies to establish, maintain, and benefit from ESOPs. Consult with a skilled professional ESOP advisor at ESOP Plus to learn more about the advantages and disadvantages of an ESOP in your unique circumstances.
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The Advantages Of Using An ESOP
An Employee Stock Ownership Plan (ESOP) can be an important tool for succession planning and exit planning in family businesses and other closely held businesses. An ESOP ownership plan can also be used as a finance and employee ownership tool in large or small public companies. When one or more owners of a closely held business decide that they want to sell all or part of the ownership interest in their business, they have a number of alternatives in addition to using an ESOP, including:
- Sell the business outright
- Bring in outside investors
- Sell to key managers (MBO)
- Go public (IPO)
- Begin a charitable and/or non charitable giving program
The ESOP advisors at ESOP Plus collaborate with clients’ other trusted consultants to determine whether an ESOP best meets their clients’ exit planning needs. If an employee stock ownership ESOP plan is not the best solution, the ESOP Plus team of ESOP advisors will work with the client, its lawyers and other trusted consultants to design a succession strategy that produces the most desirable results. The advisors at ESOP Plus do not “sell” ESOPs. They help guide clients to their best exit plan.
- An ESOP creates a tax-sheltered private market for the shares of a closely held company. One of the problems that entrepreneurs and family business owners face is that there is no convenient market for their shares. This means that it is very hard for them to sell only a part of their business. They may want to liquidate some of the personal wealth that is trapped in their company without selling the whole company. They often want to do this in order to reduce the risk to themselves and their families of having “all their eggs in one basket”
- The selling shareholder can usually retain substantial control over the company that is now partially or wholly owned by the ESOP plan. The selling shareholder may not want to give up control of their company to an outside buyer who may not continue the business and personal philosophy.
- By selling to an ESOP the selling shareholder will be able to protect the legacy of the business they have built and nurtured. The company will not become an anonymous division of an absentee buyer.
- Using an ESOP can help the selling shareholder protect the valued employees of the company. The selling shareholder may want to protect their employees from the layoffs that usually result when third party financial buyers purchase closely held companies. An ESOP advisor can provide further insight regarding the employee protection benefits of ESOPs.
- By selling to an ESOP, the shareholder may be able to postpone or eliminate any capital gains tax on the sale.
- The company may be able to obtain substantial tax benefits that enable it to reduce the cost of its borrowing both for the ESOP purchase of the shareholder’s interest and for its general corporate borrowing.
- Employees of the ESOP owned company will have a substantial, tax sheltered retirement benefit that will grow with the growth and prosperity of the company.
The Disadvantages Of Using An ESOP
- ESOPs can be expensive to implement. They are complex plans, and they require a number of professional consultants, including accountants, valuators, and ESOP advisors. Even so, the expense of implementing an ESOP is generally not more than the cost of implementing any other succession or exit strategy. In conjunction with the client’s other trusted consultants, the ESOP advisors will assemble a team to suit a client’s particular needs and financial situation.
- ESOPs require the company to follow good corporate practices that are often ignored in closely held companies.
- ESOPs require annual valuations and careful record keeping. Generally, the annual valuation is much less expensive than the original valuation at the time of the sale. The ESOP advisor practice can introduce the company to ESOP savvy third party administrators (TPAs) who can keep good records for the plan.
- Periodically, Congress changes the rules governing ESOPs. These changes are almost always quite small, but they usually require amendments to the ESOP Plan and/or Trust documents. Every five years, the company must submit the ESOP Plan and Trust documents to the Internal Revenue Service for a review of the plan provisions. Preparing the amendments and submitting the Plan and Trust documents to the Internal Revenue Service usually incur some legal costs. An ESOP advisor can coordinate with the third party administrator to draft and submit the revised ESOP documents.
- The company and the ESOP must make provisions to buy out the accounts of employees who die, become disabled, retire or are separated from service. The company should undertake a “repurchase liability study” on its own or with the help of its TPA or other professional.
Comprehensive ESOP Services
ESOPs require a complementary team of advisors, including attorneys, accountants, business valuation consultants, and third-party administrators. A crucial component of the ESOP advisor services provided by ESOP Plus is the access clients have to a robust and ever-expanding network of professional resources and partner firms. ESOP advisors are able to provide access to a wide array of trusted professionals who match a common standard of excellence in their respective fields. The ESOP Plus international connection gives clients a way to implement their employee ownership plans in their US and international divisions and subsidiaries.
ESOP advisors have more than 100 years of combined experience in the Federal and state tax law and ERISA requirements that govern ESOPs. The law firm represents owners who sell to ESOPs, corporations who sponsor ESOPs and all types of ESOP trustees and fiduciaries, including inside ESOP trustees, independent ESOP trustees, institutional ESOP trustees and ESOP trustees directed by an independent fiduciary registered as Investment Adviser under the Investment Advisors Act of 1940. The advisors of ESOP Plus have performed the legal work necessary for companies to establish, maintain, and benefit from ESOPs ranging in size from $500,000 to $1.1 billion.