What is an ESOP?

And how does an employee stock ownership plan work?

An ESOP is a defined contribution plan that invests in employer securities.

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ESOPs enable privately-held companies to sell shares, at a fair market value, to an employee trust. This is not a stock option program. Instead, an ESOP is an ERISA-authorized benefits plan.

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Who’s 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 or retire.

Who can Benefit from an ESOP?

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Owners

  • Gain liquidity & asset diversification
  • Can defer capital gains taxes on proceeds
  • Maintain upside potential & a role in the company

Companies

  • Receive tax deductions on sale amount
  • Can become income tax-free entities
  • Get a tool to retain & attract talent

Employees

  • Secure a unique retirement benefit
  • Earn a real stake in their companies
  • 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."

For additional news and insights from our advisors visit our ESOP Resources page.

Webinar Understanding ESOPs (Vistage Atlanta 26Aug20)

Could an ESOP be Right for You?

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If you’ve thought about selling your business, or if you are seeking other opportunities to take some money off the table, a leveraged ESOP may be an attractive option. Answer a few simple questions to see if it’s worth exploring an ESOP plan for your business.

TAKE THE QUIZ

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CSG does not offer and does not purport to offer tax, investment, regulatory, accounting or legal advice, and this information should not and cannot be relied upon as such. Securities, mezzanine debt and equity are offered by Synergy Capital I LLC, a wholly owned subsidiary of CSG Partners. Synergy Capital I LLC is a member of FINRA and SIPC.

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