Employee Stock Ownership Plan

An Employee Stock Ownership Plan or ESOP is an option for a business owner that wishes to sell their business.

The good news is that it is an option for a business owner to consider. The bad news is that it really only works for a very small number of businesses.

What is an Employee Stock Ownership Plan?

The premise of an Employee Stock Ownership Plan or ESOP is simple. Its primary goal is provide employees with the opportunity to own shares in the company where they work and if the company is financially successful, receive their share of that success either as short-term monetary gain or retirement savings.

To be a little more detailed, a good ESOP provides:

1. An incentive to retain and motivate all the employees in the business,
2. A share of the financial rewards of the company as retirement benefits,
3. Tax benefits for the employees who either contribute shares or cash

Is an ESOP suitable for my company?

This is a good question but the answer requires a little more information.

If you are considering an ESOP it is a regulated process to protect all the members of the ESOP plus there is no one size fits all.

What is critical is getting the right help to make sure it’s clear what operating an ESOP involves, if an ESOP is right for your company or perhaps there is a better alternative to an ESOP.

To set an ESOP up so it will be successful requires a detailed and thorough approach including the help of experienced professionals. This because the ESOP not only needs to work for the employees but also the IRS, Department of Labor and other parties that the ESOP will touch. This approach looks at critical pieces including:

1. A formal suitability analysis
2. A feasibility analysis
3. ESOP team development
4. Design of an ESOP for the specific business
5. Transaction management
6. Legal counsel and documents to ensure full compliance with the necessary laws and regulations
7. Fiduciary representation
8. IRS and Department of Labor defense

Questions about forming an ESOP?

If you want to learn a little more you can click on the following link to download a PDF that allows you to complete a suitability questionnaire to see if your company would be a good option for an ESOP.

Expert advice on forming an ESOP?

If you want expert professional advice from a company here in Sacramento, CA then reach out to Chang, Ruthenberg and Long in Folsom, CA and also have offices in Los Angeles, CA and San Jose, CA.

Wendy Gilligan is a senior attorney with the firm so you are welcome to either give her a call on 916 357-5660 or one of the attorney’s available on 855 357-5660 (toll-free.)

You can also visit their website at ESOP Benefits.