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An
ESOP is one way to transfer ownership of the company to your employees. Your
company borrows funds to buy a portion of your stock and places it in a trust.
You get cash up front and can still hold some equity in your company if you
choose to.
The
amount of stock contributed to the plan is decided by how much money your
company can access to buy the stock. As the funds are usually provided by a bank
loan, company credit and ability to repay the loan are key.
Every
participating employee in your company will have an account in the trust where
their shares accumulate. Should the employee leave the company, they immediately
vest the shares and the company purchases them back.
Your
employees now have the benefit of ownership and greater pride in their work.
Your taxable gain on the sale of the stock to the trust may be deferred in some
cases. This type of transfer will usually provide for a gradual exit over time.
There
are many legal, tax, accounting and other issues involved in an ESOP. Redtail
Advisors and our partners can walk you through the specific benefits and
challenges of such a plan to help you determine if this is a route for you to
take.
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