Benefits of Employee Stock Ownership Plans
(ESOPs)
ESOP
Benefits
Benefits to Employees
Enhanced Financial Security
- Significant improvement in retirement benefits
- Employees become beneficiaries of the Trust with no personal cash outlay
- Employees' beneficial interests ultimately repurchased by the Company or Trust
Enhanced Job Security
- Incidence of layoffs and terminations significantly lower during Great Recession
- Avoidance of redundancies in a sale to a competitor
Other Benefits to Employees
- Pride of opportunity to participate in the ownership of their company
- Company funded benefit with no contribution from the employees
Benefits to Management / The Company
Equity Incentives
- ESOP transactions usually entail additional equity incentives for management team through a separate non-qualified plan
Income Tax Benefits
- Elimination of most or all income taxes prospectively
- Potential refund of income taxes already paid
Employee Related Benefits
- Potential outperformance in terms of sale/employee, net profit margin and ROA
- Enhanced ability to attract and retain employees
- Flexibility to include or exclude union members
Other Financial and Strategic
Benefits
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Ability to repay capital expenditure financing on pre-tax basis
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Potential special benefits for certain federal contractors
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Strategic flexibility - all long term strategic options preserved
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A willing buyer at full value of the business
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Objective criteria can enable a sale during irregular market conditions
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Structure is a stock sale (not an asset sale)
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Capital gains deferral
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Certain shareholders including partnerships and individuals may defer capital gains
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Directors and officers may retain their ownership and not recognize a taxable event
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Upside retention - potential for continuing participation in the companies growth
ESOP vs. Traditional Sale
- Certainty and Confidentiality - If a feasibility analysis shows than an ESOP will work, there is certainty to closing and as it is an internal process, there are few or no disruptive rumors in the marketplace
- Rapid Transaction Execution - ESOP transactions close much more quickly, efficiently and discretely than traditional sale..
- Full Value
