Source: Butcher Joseph Hayes
At its core, an Employee Stock Ownership Plan (ESOP) is a qualified retirement plan. However, the practical use of this strategy is to provide an ownership transition and retirement plan for owners of privately owned businesses. An owner can sell part or all of his shares to the ESOP at fair market value. ESOPs stand out from other benefit plans because they allow the company to borrow money from an outside source, such as a bank, in order to purchase the company shares from the owners. As such, they are a unique combination of a benefit plan and a tool of corporate finance.
The value of the plan, as an employee benefit, is directly related to the performance of the company, creating an effective incentive for management and employees to perform well.
Publication Date: 2012-01-01