Benefits of Employee Stock Ownership Plans


Benefits to Employees

Enhanced Financial Security

  • Significant improvement in retirement benefits
  • Employees become beneficiaries of the Trust with no personal cash outlay
  • Employees' beneficial interests ultimately repurchased by the Company or Trust

Enhanced Job Security

  • Incidence of layoffs and terminations significantly lower during Great Recession
  • Avoidance of redundancies in a sale to a competitor

Other Benefits to Employees

  • Pride of opportunity to participate in the ownership of their company
  • Company funded benefit with no contribution from the employees

Benefits to Management / The Company

Equity Incentives

  • ESOP transactions usually entail additional equity incentives for management team through a separate non-qualified plan

Income Tax Benefits

  • Elimination of most or all income taxes prospectively
  • Potential refund of income taxes already paid

Employee Related Benefits

  • Potential outperformance in terms of sale/employee, net profit margin and ROA
  • Enhanced ability to attract and retain employees
  • Flexibility to include or exclude union members

Other Financial and Strategic 

  • Ability to repay capital expenditure financing on pre-tax basis

  • Potential special benefits for certain federal contractors

  • Strategic flexibility - all long term strategic options preserved

  • A willing buyer at full value of the business

  • Objective criteria can enable a sale during irregular market conditions

  • Structure is a stock sale (not an asset sale)

  • Capital gains deferral

  • Certain shareholders including partnerships and individuals may defer capital gains

  • Directors and officers may retain their ownership and not recognize a taxable event

  • Upside retention - potential for continuing participation in the companies growth

ESOP vs. Traditional Sale

  • Certainty and Confidentiality - If a feasibility analysis shows than an ESOP will work, there is certainty to closing and as it is an internal process, there are few or no disruptive rumors in the marketplace
  • Rapid Transaction Execution - ESOP transactions close much more quickly, efficiently and discretely than traditional sale..
  • Full Value
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Tax Advantages
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