There are many reasons for owners to sell their stock to an ESOP, including some of the following:
- The owner is able to sell the company at fair market value (FMV), with no negotiated discounts.
- The ESOP is a ready-made market for the company stock.
- No third party buyer needs to be located or involved.
- Sellers can receive cash up front and retain control until completely “cashed out”.
- Sellers can “defer” Capital Gains tax at the time of sale, or avoid them completely.
- Substantial tax advantages are available. The company receives a dollar for dollar deduction of the value of the stock purchased from the selling owner, which may provide additional cash flow through tax savings.
- Financing ESOPs can be easier and more efficient for businesses than conventional financing.
- Sellers can sell all of their stock now, or portions over time allowing owners to receive cash now to diversify and ease out of the business over time.