Employee Stock Ownership Plans (ESOP) can be set up several different ways. One option is to implement the ESOP on a limited basis, where a minority block of stock will be sold and the selling shareholders will remain active and continue to run the business. However, many ESOP transactions involve the sale of a large block of stock and the immediate or eventual retirement of one or more shareholders from active involvement in the business in a very tax efficient manner. Further, it can serve as a reward to key management who are capable of operating the company post closing.

In an ESOP, a trust fund is established into which cash is contributed to acquire new shares of stock from existing shareholders. The ESOP borrows the money to buy the shares, with the company making annual cash contributions to the plan to enable it to repay the “loan.”

Evergreen Capital can help you determine if an ESOP is the optimal exit strategy for you.

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