An employee stock ownership plan (ESOP) is a qualified retirement plan that invests primarily in employer stock. Let’s look at a few of the pros and cons of an ESOP.
- Contributions to an ESOP are expenses for the contributing corporation for tax purposes.
- ESOP companies are less likely to be disposed of by sale, merger or liquidation.
- Employee ownership can boost morale, reduce turnover and can be a great selling point when recruiting new employees.
- ESOP company employees usually earn a better compensation package.
- Many ESOP stock sales are at least partially seller-financed (many times up to 50%).
- The obligations of cash flows for setup, debt payments (financed purchase), audits, appraisals, and retirement payments.
- The sale of a company to an ESOP may not always be the best deal for the stockholder.
- The cash paid to a third party administrator and internal manpower for administration as well.
As you can see, there is a lot to consider when deciding whether or not an ESOP is right for your business and the full list of pros and cons is much longer.