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ESOPs Can Help Secure You and Your Employees a Financially Secure Future

As business owners contemplate the task of converting their wealth that is locked up in their company, the option of an Employee Stock Ownership Plan (ESOP) should emerge as a viable option.  ESOPs have been in existence for over thirty years and currently over 11,000 ESOPs exist nationwide.  A compelling feature of an ESOP is that you can literally create a buyer for the shares of stock in your business.  Business owners often dismiss the idea of establishing an ESOP because they do not understand the manner in which ESOP’s work.

Some common misconceptions are:

  • I need to be a C corporation – no, ESOP’s are for S or C Corporations.
  • I need to borrow money – No, ESOP’s are flexible and do not require an existing owner to borrow money.
  • I need to sell 30% to the ESOP – No, any amount of stock can be sold to the ESOP.
  • Employees become partners – No, employees are beneficial owners of stock in the ESOP, not partners.

With an ESOP, the business owner implements a partial or full cash out strategy, maintaining involvement in the business and in a sense rewarding employees with a strategy in which they can share in the growth in profits and value of the firm.  The flexible nature of ESOPs allows them to be used as tools, immediately or over many years, to customize the owners’ gradual or quick departure from the firm.  While installing an ESOP is not a simple process, there are significant benefits to be derived by doing so, and should at least be considered by most business owners.

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