ESOP , Transaction Process.

By Gary Miller , GEM Strategy Management, Inc. In a previous post, I discussed the structure of an Employee Stock Ownership Plan.

For those considering an ESOP as an exit option, here are a few advantages and disadvantages of this strategy. The tax benefits of an ESOP exit strategy can be significant. These benefits accrue to the selling shareholder s the corporation , and to the employees who participate in the ESOP.

The tax benefits to the selling shareholder and corporation vary depending on whether the corporation is taxed as an S-corporation or as a C-corporation. Some of these advantages are:. There are also several disadvantages of ESOPs to consider.

Like most business decisions, there are trade-offs with any exit strategy. An ESOP is no different. It is important to remember that an ESOP is a qualified retirement plan governed not only by the Internal Revenue Code, but also by the fiduciary and disclosure rules of ERISA. High fiduciary duty standards must be met.

This adds additional costs to the corporation including the cost of:. As can be seen from the discussion above, ESOPs are highly technical and complex.

If a business owner is considering an ESOP as an exit strategy, careful planning and retention of experienced professional advisors, including a wealth management firm, a qualified ESOP tax advisor and a qualified ESOP transaction law firm, are musts. Menu CEOs When the Best Capital Partner Is the One Who Leaves You Alone. How To Use EBITDA For the Valuation of Your Small Business.

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The Best and Least Expensive Business Development Tool for Private Equity. ESOP , Transaction Process Advantages and Disadvantages of an ESOP By Gary Miller , GEM Strategy Management, Inc. Advantages of an ESOP The tax benefits of an ESOP exit strategy can be significant.

Some of these advantages are: This adds additional costs to the corporation including the cost of: The corporation is then required to repurchase the stock at the current fair market value. Subscribe to Forum Articles via Email Email Address.

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