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 financial statements? (Q&A Webinar)
 
Who makes decisions in a 100% employee owned company? (Q&A Webinar)

Want to Learn More?

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CSG does not offer and does not purport to offer tax, investment, regulatory, accounting or legal advice, and this information should not and cannot be relied upon as such. Securities, mezzanine debt and equity are offered by Synergy Capital I LLC, a wholly owned subsidiary of CSG Partners. Synergy Capital I LLC is a member of FINRA and SIPC.

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