An Introduction to ESOPs


Learn about the tax, liquidity, and legacy-building advantages of employee stock ownership plans.

Download our ESOP Quick Reference.

 

Employee Ownership Fundamentals

Employee stock ownership plans enable closely-held companies to sell equity, at a fair market value, to an employee trust.

This is not a stock option program. Instead, an ESOP is an ERISA-authorized, defined contribution plan.

 
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How Does an ESOP Work?

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Who is the buyer?

A trust representing at least 10 employees.

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Who sets the price?

The price is negotiated with an institutional trustee, based on an independent valuation.

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How is it funded?

Commercial and/or seller financing, paid-off with pre-tax corporate cashflow.

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Who gets shares?

Full-time employees are allocated shares proportional to their annual compensation.

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How is stock earned?

A portion of all shares is allocated annually; the shares vest within 3-6 years.

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How do employees cash out?

Vested stock is sold back to the company, at a current valuation, when employees depart.

Who can Benefit from an Employee Ownership?

 
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BUSINESS OWNERS

Selling shareholders gain liquidity & asset diversification

Can defer capital gains taxes on proceeds

Maintain upside & a meaningful role

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COMPANIES

Plan sponsors receive tax deductions on sale amount

Can become income tax-free entities

Get a tool to retain & attract talent

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EMPLOYEES

Employees secure a unique retirement benefit (company stock)

Earn real stake in their company

Gain workplace stability & peace of mind

Want to Learn More?

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Since 2000, CSG Partners' nationally-recognized, investment banking team has helped private companies capitalize on the benefits of ESOPs.

Join our founder, Larry Kaplan, for a compressive introduction to ESOPs. You'll learn more about key ESOP benefits, tax efficiencies, structures, valuations, financing, and typical "good fits."

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