What is an ESOP?

An employee stock ownership plan is an ERISA-authorized, defined contribution plan that invests in employer securities.

Employee stock ownership plans enable private companies to sell equity to an employee trust. Here's how a leveraged ESOP plan works:

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Who is the buyer?

An ESOP trust, representing at least 10 employees, buys company stock.

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Who sets the price?

The price is negotiated with an institutional trustee, based on an independent valuation.

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How is it funded?

Commercial and/or seller financing, paid-off with pre-tax corporate cashflow.

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Who gets shares?

Full-time employees are allocated shares proportional to their annual compensation.

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How is stock earned?

A portion of all shares is allocated annually; the shares vest within 3-6 years.

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How do employees cash out?

Vested stock is sold back to the company, at a current valuation, when employees depart.

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ESOP Benefits

An employee stock ownership plan can create liquidity and diversification opportunities for selling shareholders, tax benefits for sellers and their companies, and a meaningful employee incentives.

Business Owners

Paid fair market value for stock
 
Can maintain role & upside in company
 
May defer capital gains taxes on proceeds

Companies

Enhance cash flow with tax deductions
 
Can become income tax-free entities
 
Gain talent attraction & retention tool

Employees

Secure unique retirement benefit (stock)
 
Earn real stake in their company
 
Gain workplace stability & peace of mind
 

In short, a leveraged ESOP can benefit all stakeholders.

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More Questions? We Can Help.

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When Larry Kaplan founded CSG Partners in 2000, he made education a priority. That remains central to everything we do. So, if you have questions about employee ownership, selling to an employee stock ownership plan, or how to prepare for a transaction, you've come to the right place. You'll find answers below and more on our ESOP Resources page.

What are the key ESOP benefits (Q&A Webinar)
 
How are ESOP tax benefits tied to corporate structure? (Q&A Webinar)
 
How are ESOP valuations determined? (Q&A Webinar)
What is the role of an ESOP trustee? (Q&A Webinar)
 
Do employee owners have access to their company’s financials?
 
Who makes decisions in a 100% employee owned company (Q&A Webinar)

 

Want to Learn More?

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