The Sale of Stock in a Closely-Held Business to an ESOP (Employee Stock Ownership Plan): A Liquidity Strategy for Business Owners (Update)

An ESOP is a qualified, defined contribution employee benefit plan that invests primarily in the stock of a company. ESOPs are "qualified" in that, in return for meeting certain rules designed to protect the interests of plan participants, ESOP sponsors receive substantial tax benefits. Business owners can sell all or a portion of their stock in a business that may otherwise be illiquid or have no established market to an Employee Stock Ownership Plan, in a highly tax-advantaged transaction. ESOPs are permitted to borrow money from or on the credit of the employer, to purchase stock from the selling shareholder. Depending on structure, an ESOP-owned company can become a nontaxable entity and access money that would have otherwise been paid to taxes, to amortize the debt used to finance the transaction. In addition to providing business owners a means to diversify their assets and gain liquidity, an ESOP is an employee benefit plan that allows a business owner to attract and retain key personnel.

This program, taught by Stan Bulua of Robinson Brog and Stephen Berman of CSG Partners, explains the overall legal structure of a leveraged ESOP transaction and discusses valuation and financing aspects of such transactions. This 2019 program provides an update to the original basic overview of key practical and strategic aspects of Employee Stock Ownership Plans.

Learning Objectives:

1. Discuss how to use ESOPs as a business succession strategy
2. Integrate an ESOP transaction with estate planning techniques
3. Identify how an ESOP sale can be an alternative to an M&A transaction
4. Update clients on financing options in the current business environment
5. Review the fiduciary rules under ERISA applicable to ESOP transactions
6. Summarize the special tax rules applicable to ESOP transactions