Why do an ESOP?

It is imperative that you get all the facts about an ESOP Stock Purchase transaction from competent and professional qualified CPA’s and Attorneys before you consider spending a good amount of money preparing for an ESOP transaction as an Exit Strategy. Getting educated will take some time but it can save you from a financially deadly disaster if your ESOP goes bad as a result of poor advice.  ESOP Transactions are very complex and not for every business owner; however, if you qualify as a candidate it provides excellent benefits to the Employer Company and employees. It is one of the best estate and trust planning tool available for the seller shareholder. One other point, be sure to have a CFO professional with experience in ESOP transactions on board before you attempt this transaction.  Otherwise, you will be a small fish in a big sea swimming alone. Get the picture?


In my first article I explained ESOP’s in general and provided the basic mechanics of how they work as an exit strategy vehicle.  In this article I list situations in which a Leveraged ESOP Stock Purchase Transaction may be considered for the closely held company.

You may consider an ESOP if any of the following situations appeal to you:

  • You want to give your managers and employees added incentives to show appreciation, goodwill etc…
  • You need or want more liquidity for retirement or for your estate but desire to stay involved in the business
  • Going Public is not your bag and you do not want to deal with regulatory red tape and costs
  • There are managers that want to buy you out that are competent and qualified to run the business without your full time involvement
  • You want to divest a business unit(s) that no longer fit your strategic goals and objectives
  • One or more investors, shareholders are no longer in alignment with management objectives or owner goals
  • You have no interest in selling to an outside third party that will take over operations etc…

One of the major benefits (besides the economic) behind a successfully implemented ESOP is that a new culture emerges and results in management, owners and employees being closely aligned with company objectives and goals. This type of alignment is usually often possible in most work environments and is a major benefit of implementing an ESOP.

There are many owner motivated reasons for selling a business. The closely held business owner holds on to the company to earn interim returns as he builds value and one day decides to cash in.  An ESOP Stock Purchase transaction can be a viable exit vehicle if implemented successfully and planned out properly. But you have to do your homework.

More on ESOP’s in blogs to come.




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