ESOPs: The Tax Law Provides a Buyer for Your Business

Ross Cohen of Baker Donelson writes about using ESOPs as a method of selling your business. His article begins as follows:

As baby boomer business owners begin to retire, many will want to monetize the value they have created in their businesses. An employee stock ownership plan (ESOP) is one alternative. The ESOP alternative, authorized by the Internal Revenue Code of 1986, allows a business owner to form a retirement plan for the employees of the corporation, or add an ESOP feature to an existing retirement plan such as a 401(k) plan. The ESOP can be the buyer of some or all of the owner’s stock in the corporation, normally in one of two principal ways. If a third-party lender to the ESOP can be found, the owner may receive all cash at the time of sale. If the owner finances the sale, the owner will receive a promissory note from the ESOP, and perhaps some cash, in payment of the purchase price. In any case, both ESOP structures provide these benefits, subject to several limitations in the tax law. The basic process is as follows:

Read more at ESOPs: The Tax Law Provides a Buyer for Your Business | Baker Donelson – JDSupra.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.