Primary Benefits of Selling Your Company to an ESOP

Business owners sometimes overlook the option of selling their company to an Employee Stock Ownership Plan (ESOP). Although this option may not be right for all businesses, it can be a very attractive and flexible alternative for the right type and size of business. The following is a list of some of the potential benefits of an ESOP:

1. The selling owner can still be employed by the business and potentially still control the business.

2. There is no disruption to the business (which typically occurs with a 3rd party sale).

3. The business name and employees remain intact.

4. The transaction can be structured in phases (owner does not have to sell entire business at one time).

5. An ESOP can used borrowed funds to pay the owner for the sale (need to address bank guarantees).

6. ESOPs act as a motivator and incentive-based retirement plan for employees.

Tax Benefits! 

• Sales to ESOPs are typically stock sales, giving the owner capital gain treatment for the transaction.
• An S-Corporation that is owned (100%) by an ESOP pays no income taxes! Among other things, that makes the repayment of debt associated with the transaction much easier.
• A C-Corp can effectively deduct the loan payments made on the ESOP bank note.
• C-Corp owners can defer paying tax on the sale (under specific circumstances).

These are some of the more important benefits of an ESOP, but this is not a complete list. Please contact us if you would like to discuss ESOPs in greater detail.