An Employee Benefit and Shareholder Liquidity Strategy
Employee stock ownership plans enable closely-held companies to sell equity, at a fair market value, to an employee trust. This is not a stock option program. Instead, an ESOP is an ERISA-authorized, defined contribution plan.
Read ahead for details on how an ESOP works, key benefits, and employee ownership pros and cons.
And for a quick study on the basics of leveraged ESOPs, download our concise guide.
Two Common Types of Employee Stock Ownership Plans
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Contributory ESOP
A closely-held company establishes an employee stock ownership plan and periodically gives equity to an employee trust. In a contributory ESOP, the plan sponsor receives tax deductions equivalent to the fair market value of shares at the time of contribution.
How a Leveraged ESOP 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 cash flow.
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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.
Who Benefits from Employee Ownership?

BUSINESS OWNERS
Selling shareholders gain liquidity & asset diversification
Can defer capital gains taxes on proceeds
Maintain upside potential & a role in the company

COMPANIES
Plan sponsors receive tax deductions on sale amount
Can become income tax-free entities
Get a tool to retain & attract talent

EMPLOYEES
Employees secure a unique retirement benefit (company stock)
Earn real stake in their company
Gain workplace stability & peace of mind
Employee Ownership Questions? We can Help.
When CSG Partners was founded in 2000, we made education a priority. That remains central to everything we do. So, if you have questions about selling to an employee stock ownership plan, or how to prepare for a transaction, or operating as an employee owned company, you've come to the right place. You'll find answers below and even more on our ESOP Resources page.