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Employee Stock Ownership Plans (ESOP)

When employees own shares, there are benefits for all

Despite the fact that business commentators continue to argue the pros and cons of Employee Stock Ownership Plans (ESOP), there are many examples where management has used an ESOPs to strengthen a company, raise working capital, and/or carry out a succession plan.

An ESOP is a trust established by a corporation and acts as a tax-qualified, defined-contribution retirement plan . Contributions are made by the sponsoring employer and can grow tax-deferred just as with an IRA or 401(k). But unlike other retirement plans, the contributions must be invested in the company's stock thus giving employees a piece of the pie -- an ownership stake in the company.

The benefits for the company include increased cash flow , tax savings , and an incentivized staff. The main benefits for the employees are increased job security and the ability to share in the company's success. 

Is an employee stock ownership plan (ESOP) right for your company and you?

Along with their benefits, ESOPs come with many restrictions and regulations. You can depend on us to help you look at the feasibility of an ESOP for your organization. As experienced employee benefit consultants, we have helped corporations of all sizes and in many different industries design, create, and administer their ESOPs. We will be able to look at your unique situation, draw on our experience, and help you determine if employee stock ownership would fit well with your business strategy and if so should it be leveraged or non-leveraged.

If you decide to move forward with an employee stock ownership plan (ESOP), we can help you with the plan design, implementation, and administration. In the design phase, we will develop models to help you analyze the effects of various factors such as s corporation and c corporation status. We also can help you determine whom to involve in the plan. Rewarding the right people will be an important element in your strategy. 

ESOP allows owner to retire and employees to keep their company


When the owners of an electrical contracting company began planning for retirement, they turned to an ESOP as a way of financing their golden years. They liked the idea of selling the company to a retirement plan for the benefit of the employees. This meant they didn’t have to look for a buyer and could be ensured that the company they worked hard to build would continue, securing the future for their employees. It also allowed them to defer taxation on the gain of the sale by investing the proceeds in other qualified securities.

In addition, the company decided to switch from a c corporation to an s corporation. An s corporation is a “pass-through” entity that pays no income tax on its earnings, but instead the stockholders pay taxes on their share of the income. As a result this company pays no income tax.