QUESTION:
I would like information on Employee Share Ownership Plans (ESOPs) as a means of business succession. I am especially interested in ESOPs from a tax perspective.
ANSWER:
Generally an ESOP allows qualifying employees to purchase shares in their employer's company, with or without monetary assistance from the company. Many companies are using ESOPs as a form of succession when there is no other successor apparent.
Whether an ESOP plan is created for succession or employee loyalty purposes, the plan must have a high participation rate to be effective. The type of business is also relevant. If it involves manufacturing and physical assets, valuations are easier to determine. The plan must be administered, which requires some work. That is why many ESOPs involve union structures that can help with administration.
ESOPS also have many tax and legal implications for companies and their owners, so anyone considering them should seek professional help. Lawyers, accountants and some BDC consultants can help companies navigate the tricky route to establishing an ESOP.
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