An ESOP is one way to transfer ownership of the company to your employees. Your
company borrows funds to buy a portion of your stock and places it in a trust.
You get cash up front and can still hold some equity in your company if you
The amount of stock contributed to the plan is decided by how much money your
company can access to buy the stock. As the funds are usually provided by a bank
loan, company credit and ability to repay the loan are key.
Every participating employee in your company will have an account in the trust where
their shares accumulate. Should the employee leave the company, they immediately
vest the shares and the company purchases them back.
Your employees now have the benefit of ownership and greater pride in their work.
Your taxable gain on the sale of the stock to the trust may be deferred in some
cases. This type of transfer will usually provide for a gradual exit over time.
One key aspect of an ESOP is how it is funded. This
is one challenge that can make the ESOP option a difficult one. A benefit of
financing is the ability to leverage your
company's historical financial performance to attract institutional investors
who can fund the ESOP plan.
There are many legal, tax, accounting and other issues involved in an ESOP. Redtail
Capital and our partners can walk you through the specific benefits and
challenges of such a plan to help you determine if this is a route for you to