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Employee Stock Ownership Plans (ESOP)
Is an ESOP Appropriate for Your Business?
If your business is a C corporation, an employee stock ownership plan (ESOP) can help you:• Turn all or part of your business assets into cash
• Sell your business and defer taxes or gains (special tax rules apply when investing the sale proceeds)
• Bring about broad-based employee ownership of your business
• Provide tax-deferred retirement benefits for your employees
Note: Partnerships, LLCs and self-employed individuals cannot establish employee stock ownership plans. S corporations can establish an ESOP plan, but tax deferral is not available when S corporation stock is sold to an ESOP.
Establishing Employee Stock Ownership Plans (ESOP)
Establishing and maintaining employee stock ownership plans is complex and may not be appropriate for all businesses. That's because:• An ESOP typically requires ongoing help from multiple professional advisors (e.g., your attorney, CPA, plan administrator and appraiser).
• The business must have sufficient cash to buy the owner's stock or must borrow the purchase price and have sufficient cash flow to pay back the loan.
Possible tax benefits of an ESOP need to be weighed against the cost and complexity of using this strategy.
When to Consider Employee Stock Ownership Plans
An employee stock ownership plan is most likely to be appropriate if:• The company is a C corporation
• Shareholders want to convert their investment in the company to cash
• The company has assets that can serve as collateral for the loan and additional debt capacity to guarantee the loan
• Shareholders are willing to give up some or all voting control of the company
• You want most or all of your employees to have ownership in the company
How A.G. Edwards Can Help With an ESOP
Your A.G. Edwards Financial Advisor can provide you with additional information about ESOP disadvantages and advantages. Your qualified attorney and CPA can help you determine whether an employee stock ownership plan is appropriate for your business. Once your sale of stock is completed, your A.G. Edwards Financial Advisor can help you develop a strategy for investing the proceeds.