Alternate Exit: Tax Advantages of ESOPs

Not all family businesses have a next-generation member who is willing or able to take the company reins. DENNIS KLEIN spoke to LI Business News about one option that is getting more attention lately — selling the business to the employees through an employee stock ownership plan (ESOP).

An ESOP is a retirement plan in which employees have ownership shares in the company. While other retirement plans diversify their holdings by investing in a variety of assets, the ESOP invests primarily in stock of the company. It operates through a trust, under the direction of a trustee.

An ESOP is “another arrow in the quiver for succession planning when businesses may not be able to find an outside buyer or if they want to sell to top managers within the company who may not have the money to purchase it,” Dennis said, noting either the seller or a bank may provide the financing to the ESOP for the transaction.

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