Mature BusinessBENEFITS

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  • ESOP & the Next Generation

    Game Plan


    How to Transfer Your Company to Employees with an ESOP

    According to the National Center for Employee Ownership, about two-thirds of the approximately 12,000 ESOPs exist to provide a ready market for selling the plan sponsor’s business.

    Other business owners use ESOPs as a supplemental employee benefit plan for employees or to borrow tax-advantaged money. Closely held companies sponsor the vast majority of these plans, while public companies sponsor only 3% of them.

    Typically, employee equity builds gradually through an ESOP. Although business owners may use an ESOP as a long-term way to transfer business, it may also serve as a short-term vehicle to buy out a partner’s shares. And because owners are also employees, they enjoy the same tax advantages of a qualified defined contribution retirement plan as their employees.

    Game PlanGame Plan

    Game Plan

    • Take your time. Weigh an ESOP against other qualified retirement plans. Compare selling your company through an ESOP to selling it on the open market.
    • Decide whether your company owners or the ESOP will retain majority control of the business. Over 80% of ESOP Association member companies are majority-owned (51% or more) by ESOPs. You can also structure the plan to ensure that principals remain majority owners.
    • Do your homework. Before making your final decision, understand the costs, compliance, administration and other factors that go into setting up and maintaining an ESOP.
    • Learn about other transition options here.