In addition to selling a business to a third party, another strategy that can be used to create liquidity for the owners of a privately-held business is an Employee Stock Ownership Plan (ESOP). ESOPs are viable options in certain circumstances, depending on what the shareholder(s) are tryng to achieve. Deal Capital offers ESOP formation and consulting services through its partnership with experienced ESOP professionals.
Alternative ESOP structures, including a mix of debt, can be an effective alternative when it comes time to securely liquidate corporate business assets.
ESOPs are unique plans that can be used to accomplish multiple goals, including creating liquidity for the owners of privately held stock, developing a business succession strategy, transferring the business to the next generation, and creating incentives for a business’ employee base. ESOPs also have the benefit of being tax-qualified plans and, as a result, businesses receive tax advantages for employing them.
An additional advantage of employing an ESOP is that in cases where a shareholder in a C-corporation sells stock to an ESOP and certain other criteria are met, the selling shareholder has the opportunity to use IRC 1042 to indefinitely defer payment of their capital gains tax.