ESOP could be an alternative exit strategy for business owners

As business owners approach retirement age, many consider selling and often face difficult decisions related to the value of their enterprises.

While a business owner wants to receive fair-market value for the business, he or she may not want to sell to a third party. The owner may want to reward loyal employees who have made significant contributions to the success of the business, and for these owners, an employee stock ownership plan, or ESOP, may be a practical exit strategy.

What is an ESOP? It is a type of qualified retirement plan similar to a profit-sharing plan with one main difference. An ESOP is required by statute to invest primarily in shares of stock of the ESOP sponsor (the corporation selling the stock). Unlike other qualified retirement plans, ESOPs are specifically permitted to finance the purchase of employer stock by borrowing from the corporation, other lending sources or from the shareholders selling their stock.

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