What Are ESOPs?

Unique tax-advantaged solutions for difficult business issues

An employee stock ownership plan ("ESOP") is a tax-qualified retirement plan that also is an extraordinary corporate financial and tax-advantaged tool for the closely held company. An ESOP is authorized by law and design to invest in the shares of the company sponsoring the ESOP. The ESOP can pay shareholders fair market value for all or part of their company shares, raise capital by engaging in tax-favored company share transactions, and increase cash flow. ESOPs also permit employees to take an ownership interest and share in the company's success. Both C corporations and S corporations may sponsor ESOPs, and the S corporation's "pass through" income is not taxable at the S corporation or ESOP level.

ESOPs offer unique tax-advantaged solutions for difficult corporate, financial, shareholder, and community issues.

Owner Diversification with Retention of Business. ESOPs allow closely held business owners to take cash out of their business for diversified reinvestment on a tax-advantaged basis.

Raising Capital and Creating a Financial Partner. ESOPs provide tax-advantaged financing for corporate rebuilding, expansion, acquisition, and management buyouts.

Owner and Management Succession Planning. ESOPs provide the market and capital for the ownership transfer of a closely held business through successive generations of family or management.

Keeping Businesses in the Community. ESOPs provide an important alternative and competitive buyer when local businesses are for sale. They help keep businesses in the community.

Employee Benefits, Ownership, Wealth Creation, Teamwork and Productivity. ESOPs provide cost effective employee benefits in the form of retirement benefits and wealth creation, and through ownership in the sponsoring company, ESOPs encourage teamwork and productivity.

Tax Advantages. ESOPs provide extraordinary tax advantages.

Shareholders may reinvest tax free sale proceeds from an ESOP.
Corporations can deduct principal as well as interest on ESOP loans.
Corporations can deduct dividends paid on ESOP stock.
S corporation ESOPs can provide significant shelter from federal and state taxes.

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