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Contact one of our bankers to discuss creative ESOP structures for your business exit.

Employee Stock Ownership Plans

Use creative ESOP structures as an alternative method for exiting your business profitably

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.

Strategy Development

  • Goal & Objective Setting – determine if an ESOP can help you achieve your business and personal goals
  • Feasibility Assessment and Analysis – conduct rigorous quantitative analysis to determine if an ESOP is financially feasible and advisable for your company.
  • Alternatives to Consider – compare an ESOP with other potential solutions
  • Cost/Benefit Analysis – determine if the benefits of implementing an ESOP for your company exceeds the benefits achieved.

Strategy Implementation

  • Plan design and ESOP formation – drafting the necessary legal, corporate, shareholder and employee documents and agreements to tax qualify the plan with the IRS and make it effective in the eyes of the regulatory authorities.
  • Financing alternatives – compare internal versus external funding for the plan. Secure financing for the ESOP if required.
  • Repurchase obligation – forecasting your obligation to repurchase the shares of departing ESOP participants and evaluating pre-funding strategies.
  • Employee communications – communication strategies to maximize employee results.