How Does an 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.

Certain ESOP rollovers may permit 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.

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.

For more information on the benefits of employee stock ownership plans, see our post on the benefits of ESOPs for all stakeholders.