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Benefits of an ESOP for

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Business Owners, Employees & More

 

Who really benefits from an ESOP?

The benefits of an ESOP affect the selling shareholder(s), the business as a whole, employees, and even the greater community. How?

Consider these key advantages:
Benefits to the Selling Shareholder(s)
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ESOPs are the most tax-efficient method of business ownership transfer — for both the seller and the company

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Flexible transaction structuring options make it possible for the selling shareholder to net the same or even more, after taxes, than they would after a third-party sale

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In some circumstances, selling shareholders may qualify for a tax-deferred rollover of sale proceeds

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As an exit strategy, an ESOP separates the financial transaction from the change in control over the company 

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ESOPs enable departing owners to leave a legacy of ownership and wealth-building for employees, and to leave a namesake company in their community

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Benefits to the ESOP Company
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The transition to an ESOP doesn’t require changes to management or leadership at the time of sale; in fact, selling owners can maintain their leadership role as they choose

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A 100% ESOP-owned S corporation is currently exempt from federal income tax, as well as most state income taxes, creating a tax advantage that can improve free cash flow

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An ESOP is an attractive employee retirement benefit that helps recruit talented candidates and retain quality employees

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ESOP-owned C corporations benefit from certain tax deductions

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ESOP companies outperform non-ESOP businesses by 2.5% — just by being ESOPs (add a participative management culture and ESOPs outperform their peers by 8–11%)

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Employee-owners often embrace an ownership mindset, always looking for ways to innovate, improve productivity, increase profitability, and stay competitive

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Money that would otherwise be used to pay corporate income tax can instead be used to fund the purchase of stock for a qualified retirement plan

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Benefits to Employees
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An ESOP is a qualified retirement plan that requires no financial contribution from the employee

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The ESOP is an additional employee retirement plan that makes workers shareholders in the financial rewards of a successful company

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Employee ESOP distributions are tax-deferred and can be rolled over into an IRA

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An ESOP sale helps the company retain jobs at the ownership transition, unlike third-party sales or M&A transactions

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Talk to our experts and see if the benefits of an ESOP are right for you.

Schedule a Free ESOP Readiness Assessment