Excel Legacy Group

esop benefits

protect & reward

Together we can develop a plan that will not only keep your legacy intact but will protect and reward those that helped build your company.

what is an ESOP ?

An Employee Stock Ownership Plan (ESOP) is a retirement benefit plan for employees, like a 401(k), but with some important differences.  As opposed to a 401k, an ESOP does not accumulate shares of other companies in plan participant accounts, but instead, it invests primarily in the stock of the employer company.  Also, instead of reducing their current salary to build their account value, employees don’t use any of their money to fund ESOP accounts. ESOP employee account value growth comes from the employer’s financial performance, which of course aligns the interests of employee and employer.  Finally, an ESOP can borrow money to buy the sponsoring company’s shares directly from selling shareholders or from the company.  This is how business owners can use the ESOP to create a liquidity event or an exit strategy.

READY TO LEARN MORE ABOUT ESOPs?

ESOP Advantages

Customized
Transaction

Customization of many of the transaction terms to fit the situation. For example, each shareholder can sell any interest they wish to sell – from a minority interest up to 100%, i.e., some shareholders can exit and others can stay.

Fair Market
Value

Contrary to popular belief, for whatever shares are sold to the ESOP, the selling shareholders can receive fair market value for their shares.

Cash at
Closing

Selling shareholders can receive significant cash at closing (amount will be determined by ability of company to obtain financing).

Leveraged
ESOP

A leveraged ESOP (“LESOP”) is simply an ESOP that has obtained financing to purchase shares of the company from existing shareholder or from the company itself.

Capital Gains
Deferment

Selling shareholders can permanently defer capital gains taxes on the transaction  that would have to be paid in taxes in a normal third-party sale. 

Retain Company
Control

Regardless of the amount of interests sold by the selling shareholders they can retain control of the business post – closing, or vest control in a management team (which could even include next generation family members).

Tax Exempt
Entity

The post-closing ESOP company receives significant tax deductions enabling it to pay little or no corporate taxes and, potentially, to receive refunds of any taxes previously paid. If the ESOP owns 100% of the capital stock after close, the company becomes what is essentially a for-profit, tax exempt entity.

Second Bite
of the apple

“Second bite of the apple” for the shareholders or for others the shareholders care about, typically equaling 30-40% of the equity value of the business, consisting of the seller financing warrants and non-qualified management incentive plan.

Retirement Benefit
Windfall

Employees get a retirement benefit windfall (i.e., not using any of their own money to fund the plan) and they can defer taxes to later in life when their tax bracket will likely be lower.

Common esop misconceptions

Considering ESOPs have not been as popular as selling outright to a private equity group there are many assumptions and misconceptions regarding the process.

FREE ESOP Consultation

Available from 8:00AM – 5:00PM