Broker Check
Exit Strategies: ESOPs

Exit Strategies: ESOPs

November 04, 2021

Several of our clients have gone through or are considering the next steps to transition or exit a business. Business owners have multiple options to consider when evaluating their exit strategies. An employee stock ownership plan (ESOP) is one such option that technically is an employee benefit plan and gives owners an opportunity for a profitable transition. An ESOP has certain tax benefits that may be appealing to those looking to facilitate succession planning in a closely held business.

 A few advantages of ESOPs:

  • Facilitates the transition of ownership and creates a liquidity event for the owners that can be structured to accommodate different forms of financing
  • Aligns employees’ interest with those of the shareholder (as the employee owns shares themselves)
  • Acts as a Qualified Plan
    • Non-taxed entity
    • Contributions are tax-deductible to the company
  • 100% ESOP owned S Corporations generally do not pay tax
  • Participants can potentially rollover distributions to an IRA

A few caveats:

  • Payments are typically over time as opposed to a one-time liquidity event
  • Setup costs can be substantial
  • Dilution can occur with newly issued shares
  • Cannot be used in partnerships


As financial advisors, we frequently consult with clients in the positon to exit a business and always encourage getting all options on the table.

Please reach out if you or your clients have interest in exploring exit strategies, and we’ll be happy to coordinate with various experts to compare opportunities.


Matt and Andrew