ESOPS – Your Employees May Be Your Best Buyer

ESOPS – Your Employees May Be Your Best Buyer 

Traditional sale transactions may not always represent the best way to meet an owner’s needs. Perhaps it’s too difficult to attain the specific terms a seller may want. A Seller may be asked to assume more risk than they want through the use of notes, earn-outs, or other risky terms. Or, their future role in a company may be diminishing more than they would like.

If you are looking to sell your company, you may find your employees are your best successors. ESOPs are tax-qualified employee benefit plans that allow you to sell shares of your company to your employees.

ESOPs can be typically used:

  • Corporate sale of a subsidiary or division.
  • Partial or complete sale by a principal of a company who is seeking liquidity while desiring to continue his/her management role.
  • Retirement of a business owner.
  • When an estate wants to sell a deceased shareholder’s interest in a business. An ESOP can provide many benefits that you, your company and your employees can take advantage of now rather than wait for your retirement.

To you…

  • An ESOP provides a market for your stock. It creates liquidity for your investment.
  • There are Tax Advantages. Sale of your stock can be free from current capital-gains taxation if at least 30% of the stock of your closely held company is sold to an ESOP and you reinvest the proceeds in qualified replacement property with three months prior to or l2 months after the sale.
  • The ability to maintain control of your company while cashing out.

To your company…

  • The ESOP buys company stock on behalf of the employees. If it finances its purchase and buys newly issued stock/shares, the company can gain additional capital using credit that may be at a lower cost than other forms of debt.
  • Tax Advantage. Company contributions to an ESOP are tax deductible under the term sof a qualified retirement plan. When these contributions are used to make payments on an ESOP loan, both principal and interest payments are tax deductible.
  • Attracting and Keeping Good People. Many companies MyCompany Quarterly Report an increase in productivity after implementing an ESOP. Employees tend to feel and act more like owners. ESOPs are a great way to attract highly qualified people.

For the employees…

  • Retirement benefits.
  • An opportunity to own a piece of the company.

For further information on setting up an ESOP Program or for appraising your company for ESOP purposes call Grimes, McGovern & Associates today.

Grimes, McGovern & Associates provides expert advice during all phases of a transaction. Contact us today for a confidential consultation: John McGovern, CEO, jmcgovern@mediamergers.com, (917) 881-6563 or Julie Bergman, VP, Newspaper Division, jbergman@mediamergers.com, (218) 230-8943.

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