Basic ESOP Information
There are about 7,000 ESOPs in the US. As an alternative ownership model, an ESOP can preserve legacy and create perpetually sustainable businesses. It provides shareholders of privately-held businesses a tax-efficient liquidity vehicle, while also enabling the employees to earn a share of the business that they helped to build. Employees do not need to approve an ESOP sale or invest in it. If you are a closely-held or a family-run business, you or your family can still run the business after establishing an ESOP.
Below are the most common reasons why business owners choose to pursue an ESOP buyout transaction for their businesses:
Owner and Stakeholder Benefits
- Creates liquidity and a transition plan for shareholders, enabling them to defer their capital gains taxes from the sale, often permanently;
- The current credit markets are robust and competitive allowing us to raise all or part of the necessary financing to complete the transaction;
- More private and less adversarial than selling to an outside third-party;
- Provides continuity of the existing corporate culture and retains the owners’ legacy;
- Thousands of companies are now 100% ESOP-owned S Corporations; since ESOP trusts are tax-exempt, these organizations operate essentially tax-free;
- Partial ESOPs also have significant tax advantages, depending on how they are structured that either allow for a full corporate tax deduction for the ESOP purchase or exempting the ESOP’s ownership portion from future taxation;
- Maturing ESOPs can become a tax-advantaged vehicle to acquire other businesses.
- Employees on average make 5% to 15% more annually by receiving stock in their ESOP accounts;
- Employees on average have 3 to 7 times the retirement assets verses non-ESOP benefit plans;
- Employees become beneficial owners without investing any of their own money;
- Employees build equity value annually in their ESOP accounts enabling them to benefit from the company’s future growth and success;
- ESOPs keep companies local, create jobs, retain employees and outsource fewer jobs.
The Ambrose ESOP Advisory Approach
We offer an ESOP-focused bundled services platform. Our team will help you explore an ESOP as a transaction option, structure, execute and finance a transaction, as well as manage the post-transaction administration and maintenance for the ESOP. We can handle the entire sell-side of a transaction;*
- Investment Banking: Valuation analysis, transaction structuring and modeling, creating the transaction plan, leading the transaction execution, debt placement;
- Transactional Support: Transaction design, due diligence, transaction negotiations, build-out an e-data room, assistance with selecting an ESOP Trustee to lead the buyside of the transaction;
- Legal Counsel: AmbroseAdvisors’s™ affiliate member, Holzman Horner PLLC, provides independent legal representation of shareholders and companies seeking counseling on ESOP-related matters and transactions involving ESOPs;*
- Annual Reporting and Ongoing Support: Coordination, consulting, record-keeping, third-party administration (TPA), accounting & tax reporting assistance;
- Special Needs: Favorable determination letter application submissions, other IRS & DOL representation, and voluntary correction submissions.
*All ESOP-related legal services are provided through Holzman Horner PLLC, an affiliate member of AmbroseAdvisors™.