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When an ESOP Makes Sense Over Traditional M&A Deal

When an ESOP Makes Sense Over Traditional M&A Deal

An ESOP (employee stock ownership plan) is a tax-advantaged transaction that can simultaneously accomplish several financial and tax objectives. The first advantage of creating an ESOP is that it allows business owners to individually tap into cash, or, at least a more liquid investment position, without having to give up ultimate control of their business. A second advantage of an ESOP is that it also allows a business to reduce its federal income tax liability at any given level of profitability while still offering a valuable employee benefit to its workers, thereby increasing employee morale.

ESOPs can present major tax benefits to an employer, employees and the employer’s shareholders, and is a great alternative to a traditional M&A deal for business owners hitting roadblocks in the process of an exit. Although it is a highly-advantageous alternative to traditional M&A, there has to be unique circumstances for the ESOP to make sense, and often advisers exhaust all possibilities before exploring an ESOP. If you have a closely-knit company with family member employees with strong ties to the owner, an ESOP may also be the right move for you. Contact Alex Conti to discuss your situation.




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