Summary
Congress designed ESOPs to be the most cost-effective means for both owners and companies to provide for business transition. One of the most difficult problems for owners of closely-held businesses is finding a way to turn their equity in a business into cash for retirement or other purposes. The decision to sell is more than an economic one, however. After putting years into a business, an owner develops a strong feeling of identity with the company. At the same time, the owner often has a sense of loyalty to the employees and would like to see them have a continuing role in the company. For some business owners, the answer to these problems will be to turn over the company to an heir or sell to a competitor. ESOPs (employee stock ownership plans) can be a very attractive and tax-favored alternative.