Valuation & eSOP services


Business owners can use Employee Stock Ownership Plans (ESOPs) as part of their succession planning strategy. Structured properly, an ESOP allows an owner to begin diversification of their equity while maintaining control. As a tax-advantaged alternative to third- party sales, a sale to an ESOP should be considered by a business owner assessing their succession planning options.

The idea of having key managers and employees take over the operations when they retire is one that has appeal to many business owners. However, many of these key employees have limited capital to fund a management buyout. Using an ESOP as part of this buyout structure can make the transaction possible.

An ESOP is permitted to borrow funds in order to acquire company stock. A buyout is thereby financed in a more tax-efficient manner, since the ESOP compensation expenses recorded for employees allows repayment of loans with pre-tax (not after-tax) dollars.

Benefits of Sale to an ESOP

Federal tax code contains provisions that favor the sale of company stock to an ESOP.  Shareholders who sell to an ESOP can defer capital gains tax payments on their proceeds, when following the guidelines set forth under Section 1042 of the Internal Revenue Code. 

Additional tax advantages for a company exist, most notably for Sub-S corporations. The Sub-S corporation ESOP is not taxable on its share of corporate earnings. The taxes are deferred until employees take distribution from the plan upon retirement, death, disability, or termination.

Forming an ESOP can also lead to the development of an employee-ownership culture, one that empowers and rewards employees for their efforts. Client experience (and academic research) reveals that simply forming an ESOP will not give your company an “ownership culture.”  Demonstrating the financial benefits of ownership, and sharing company performance data in a way that emphasizes how each work group contributes to success, are two primary ways to encourage your employees to think and act like owners.

Why Choose KSM?

Katz, Sapper & Miller knows the value of an ESOP first-hand. We implemented our own ESOP plan in 2001. In addition to the numerous tax advantages an ESOP provides, we have benefited from those same values of employee ownership and empowerment that are important to you.

Our professionals combine the depth of ESOP valuation and financial advisory experience with the breadth that comes from the firm’s position as a leader in the areas of audit, tax, and consulting services. Contact us today to learn more on how we can institute an ESOP for your company.