Construction Company


  • Work includes highway and bridge construction, overlay projects, water/ sewer construction, and sewage treatment plant construction
  • C Corporation
  • 4 shareholders
  • Approximately 21 non-union employees
  • Company value $20,000,000


  • Shareholders looking for an exit strategy over time
  • Corporate tax relief
  • Employee retention & motivation
  • Maximize retirement benefits


  • ESOP 1042 election to defer capital gains tax was not desirable
  • Due to company specific circumstances, IRC 1202 tax treatment offered combined capital gains tax rate of 8.625%
  • Establish an ESOP Trust
  • All shareholders will sell 100% of their stock to the ESOP
  • Sellers will receive cash and notes in exchange for selling their stock
  • Warrants will be issued to selling shareholders
  • Immediate S Corporation election

Benefit to Client

  • Owners received $600,000 cash at closing
  • 12 year seller notes totaling $19.4 million at a 4.5% interest rate (life of loan interest = approx. $6.4 million)
  • To reward/incentivize sellers for taking subordinated notes, shareholders received 800,000 warrants
  • At the end of the seller note period the projected value of warrants is estimated to be $7.9 million
  • As a 100% S Corp ESOP owned company, 100% of future profit will not be taxed from that point forward
  • Over the next 12 years the corporate tax savings are estimated to be over $29 million
  • Tax savings cover the entire cost of the stock sale and continue indefinitely