An ESOP is a qualified, defined contribution employee retirement plan that can be used to purchase the stock of the sponsoring company. This allows company owners who have private, closely held company stock, to sell his/her stock to an ESOP in exchange for cash or notes to gain liquidity and create a market for the stock.

There are many reasons for owners to sell their stock to an ESOP, including some of the following:

• The owner is able to sell the company at fair market value (FMV), with no negotiated discounts.
• The ESOP is a ready-made market for the company stock.
• No third party buyer needs to be located or involved.
• Sellers can receive cash up front and retain control until completely “cashed out”.
• Sellers can “defer” Capital Gains tax at the time of sale, or avoid them completely.
• Substantial tax advantages are available. The company receives a dollar for dollar deduction of the value of the stock purchased from the selling owner, which may provide additional cash flow through tax savings.
• Financing ESOPs can be easier and more efficient for businesses than conventional financing.
• Sellers can sell all of their stock now, or portions over time allowing owners to receive cash now to diversify and ease out of the business over time.

• Owner retirement or divestiture
• Buy-out of active or inactive partners or investors
• Divorces or Estate sales
• Management led buy outs, takeovers, or divestitures
• Owner diversification of stock concentration
• Refinance of existing debt to allow for the deduction of both principal and interest costs
• Reduce company debt load and increase corporate cash flow
• Owners desiring to keep company locally intact with existing employees
• Owner wishes to diversify for immediate cash, but retain some stock for future upside benefits

• Business owner who needs liquidity
• At least 20 full time, permanent employees
• Business value of $5,000,000 or more, or net income of approximately $1,000,000 or more
• 5-year history of profitable operations
• “C” or “S” Corporation, or the ability to convert
• Strong second-line management

No. Control of the company does not have to change regardless of the percentage sold to the ESOP.

ESOPs have many moving parts and are complex requiring specialized knowledge, skill and expertise. Fortunately, BTA is a specialized ESOP consulting firm that works along side of a company’s owners and current advisors to efficiently navigate the installation process.

ESOP installation requires professional advisors who generally are not inexpensive. Ongoing costs include annual valuation and administration. Expenses must be compared to the significant economic and personal benefits of an ESOP as well as the fees associated with an outright sale.

An ESOP company must do annual corporate compliance which is already required. It is also a good idea to hold regular employee meetings to promote the ESOP and provide basic corporate status updates. Additionally, the company must be run for the benefit of all shareholders including the ESOP. However, the seller and family may retain control, continue to work and receive a reasonable salary with typical perks and benefits.

No. Employees have a beneficial interest in the ESOP not direct stock ownership. Therefore, employees do not have the right to see corporate financials or any other confidential corporate documents.

Many banks are very willing to lend for ESOP purposes. ESOP loans are not unlike the cash flow and collateral requirements of any other business loan. Additionally, BTA employs creative techniques to significantly reward sellers for taking a seller note for sale amounts in excess of what the bank will lend.

No catch. ESOPs have been around for nearly 40 years primarily based on the regulations found in the Employee Retirement Income Security Act of 1974 (ERISA). ESOPs are overseen by both the Department of Labor and the IRS. BTA obtains a “Letter of Determination” from the IRS on every ESOP we install.