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ESOP // Employee Stock Ownership Plan // A qualified, defined contribution employee retirement plan designed to invest primarily in employer stock of a sponsoring company.

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ESOPs provide an opportunity for business owners or shareholders to successfully plan an immediate or gradual tax advantaged exit strategy, while also engineering the continued success of the business.

Situations to Consider an ESOP

  • Owner retirement, investment divestiture, or immediate cash
  • Buy-out of active or inactive partners or investors
  • Divorces or Estate Sales
  • Management buy outs or takeovers
  • Owner diversification of stock concentration
  • Refinance of existing debt to allow for the deduction of both
  • principal and interest costs
  • Reduce company debt load and increase corporate cash flow
  • Owners desiring to keep company locally intact with existing employees

General ESOP Candidate Profile

ESOPs are very flexible which makes it difficult to provide strict guidelines; however, the following criteria has proven to be effective:

  • Business owner who desires partial or full liquidity
  • 20 or more full time permanent employees
  • Business value of $5,000,000 or more, or net income of approximately $1,000,000 or more
  • 5 year history of profitable operations
  • Strong second line management a plus


If I sell more than 50% of my business, will I lose control?

No. Control of the company does not have to change regardless of the percentage sold to the ESOP.

Are ESOPs Expensive?

ESOP implementation requires professional advisors who generally are not inexpensive. Ongoing costs include annual valuation and administration. Expenses must be compared to the significant economic and personal benefits of an ESOP as well as the fees associated with an outright sale, which are typically more expensive.

Will my employees have access to corporate financial information?

No. Employees have a beneficial interest in the ESOP not direct stock ownership. Therefore, employees do not have the right to see corporate financials or any other confidential corporate documents.

How difficult is it to obtain financing?

Many banks are very willing to lend for ESOP purposes. ESOP loans are not unlike the cash flow and collateral requirements of any other business loan. Additionally, BTA employs creative techniques to significantly reward sellers for taking a seller note for sale amounts in excess of what the bank will lend.

How complicated are ESOPs?

ESOPs have many moving parts and are complex requiring specialized knowledge, skill and expertise. Fortunately, BTA is a specialized ESOP consulting firm that works along side company owners and current advisors to efficiently navigate the implementation process.

Will an ESOP change the way we do business?

An ESOP company must follow all federal and state laws already required. It is also a good idea to hold regular employee meetings to promote the ESOP and provide basic corporate status updates.  Additionally, the company must be run for the benefit of all shareholders including the ESOP. However, the seller and family may retain control, continue to work, and receive a reasonable salary with typical perks and benefits.

ESOPs sound too good to be true. What’s the catch?

No catch. ESOPs have been around for nearly 40 years primarily based on the regulations found in the Employee Retirement Income Security Act of 1974 (ERISA). ESOPs are overseen by both the Department of Labor and the IRS. BTA obtains a “Letter of Determination” from the IRS on every ESOP we install.


ESOPs often provide more money after tax in a seller’s pocket than any other transition option.


  • Immediately sell all stock or portions over time at full Fair Market Value
  • “Defer” capital gains taxes or avoid them completely
  • Seller and family can retain personal salary, perks, benefits and control without interference of outside interests
  • Ability to transfer company and/or control on seller’s timetable to family or key management
  • Retain personal and corporate legacy in the town in which the seller contributed greatly
  • Financing ESOPs can be easier and more efficient for businesses than conventional financing
  • Seller may maintain equity interest in future upside of company


  • The company receives a dollar for dollar income tax deduction on the entire stock sale price
  • An ESOP company can become 100% federal and state income tax exempt
  • ESOP companies outperform their peers with increased productivity and higher return on investment
  • An ESOP increases employee retention, motivation, and loyalty

Employee and Community

  • Employees enjoy an equity stake in company
  • Employees enjoy enhanced retirement benefits with no out-of-pocket costs
  • An ESOP creates an ownership culture, which improves employee satisfaction and creates a more enjoyable workplace
  • The company remains an important contributor to the community’s social and economic fabric