ESOP Transactions

ESOP transactions are a critical aspect of employee stock ownership plans (ESOPs).

ESOP transactions are a critical aspect of employee stock ownership plans (ESOPs). Check out these ESOP transaction questions.

What Is a Leveraged ESOP Transaction

An ESOP transaction is leveraged if it borrows money to purchase shares of the employer’s stock. The loan transaction may be from a bank or financial institution, or the selling shareholder may finance the ESOP transaction by taking back a note for part or all of the purchase price. The ESOP transaction is usually secured by assets of the sponsor company. In some cases, the selling shareholder may be required to guarantee the loan or provide security for its repayment. An ESOP is the only kind of employee benefit plan that can use the credit of the company and its shareholders to finance the purchase of company stock. For all other qualified employee benefit plans, this would be a prohibited transaction under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

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Most ESOPs used for ownership transition purposes are designed as leveraged ESOP transactions, although non-leveraged ESOPs can also be structured to provide significant tax benefits in connection with corporate acquisitions and divestitures.

Can a Majority Shareholder Remain in Control of the Company After Selling Stock to an ESOP?

The best way to remain in control following an ESOP transaction is to sell only a minority interest in the company to the ESOP. In addition, a shareholder may participate in the administration of the ESOP, subject to the fiduciary requirements.

Read a case study on selling a minority stock interest in a Private Company.

ESOP Transactions as Acquisition Strategies

ESOP transactions can take the form of acquisitions. As ESOP companies mature, particularly 100% ESOP-owned “S” Corporations, they often find they have the resources and the strategic drive to purchase other companies. ESOP transactions can be a win-win situation for acquirers, sellers and employees, but there are many practical and legal considerations. We’ll help you understand some of the opportunities and pitfalls of ESOP transactions to ensure your acquisitions approach makes sense.

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ESOP Transactions and Your Exit Plan

ESOP transactions often result in a need for an exit plan. At its core, exit planning is about making a significant change in ones business and life. Therefore, the very personal aspect of this planning mean business owners who are thinking about an exit plan struggle on many levels with advancing forward.

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ESOP Transaction Exit Plans for Different-Sized Businesses

ESOP transaction exit plans differ greatly for different sized businesses. Business owners need to know where they fit on the exit planning transfer spectrum as well as how to begin your exit planning today. The Exit Planning Transfer Spectrum The exit choices that are available to privately-held business owners are largely dependent upon the…

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ESOP Transactions using warrants

ESOP transactions using warrants are the focus of this article by SES Chairman & CEO Jim Steiker. See how warrants can be used to bridge the gap in a larger ESOP transaction between bank financing and the full price of the sale. Warrants in ESOP Transactions Jim Steiker describes how warrants are used as part of…

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Using Warrants in ESOP Transactions

Using Warrants in ESOP Transactions SES Chairman & CEO Jim Steiker explains how warrants can be used to bridge the gap in a larger ESOP transaction between bank financing and the full price of the sale. Published in the NCEO March-April 2013 Edition of the Employee Ownership Report Is an ESOP right for your company?

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ESOP Transaction Plans Let Founders Cash Out

ESOP transactions are the focus of this article profiling a number of ESOP companies including Organically Grown Company, an SES client. ESOP Plans Let Founders Cash Out This article profiles a number of ESOP companies including Organically Grown Company, an SES client. Published June 17, 2010 on CnnMoney.com Is an ESOP right for your…

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