How Does the ESOP Benefit the Stockholders?

One of the most popular uses for an ESOP is to provide a ready market for some or all of the shares owned by shareholders in a closely held company. With an ESOP in place, a majority or controlling shareholder has an exit strategy when he or she is ready to retire. Likewise, an ESOP is often an attractive buyer for a minority shareholder in a closely held company.

The ESOP rollover described in Question 24 permits a shareholder to sell C corporation stock to an ESOP and defer capital gains taxes. This option can also be used to obtain estate planning benefits. While the tax deferral is not available for an S corporation selling shareholder, ESOPs offer many advantages to S corporations (See Question 12).

With an ESOP, a majority shareholder has the option of selling only a portion of his or her stock to increase personal liquidity while maintaining control of the company.