What is an ESOP

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What is an ESOP?

• Presented by

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ESOP is an acronym for

• Employee
• Stock
• Ownership
• Plan
• The key word is Ownership not Option

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OK, but What Is an ESOP?

• Short definition
• A IRS qualified employee benefit plan which
  may invest all of its assets in the stock of the
  sponsoring company

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What an ESOP is NOT

• Not an employee stock option plan
• Not an employee stock bonus plan
• Not an employee buy-out with their money
• Not a plan taking control from management

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A Few of the Better-Known ESOP Companies

• Avis
• Northwest Airlines
• Anheuser Busch
• Norcal Waste Systems
• Polaroid Corporation
• Hy-Vee Supermarkets
• Lowes

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More Examples of ESOP Companies

• Charles Schwab Co.
• United States Sugar Corporation
• Phillips Petroleum
• New Leaf Distributing Company
• Rockbit International, Inc.
• WinCo Supermarket Chain
• Specialized Marketing, Inc.

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More Examples of ESOP Companies

• Publix Supermarkets
• Dillingham Construction Co.
• Bank of Walnut Creek
• Davey Tree Expert Co.
• Bofors Printing Co.
• Jacksons Hardware

And more than 12,000 other companies, some just
like yours
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ESOP Transaction Leveraged Stock Purchase
Institutional Lender (Bank)
Shareholder(s)
Scenario Retiring Business Owner
Company
ESOP
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ESOP Transaction Leveraged Stock Purchase
Institutional Lender (Bank)
Shareholder(s)
1. The company borrows money from the bank
1.
Company
ESOP
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ESOP Transaction Leveraged Stock Purchase
Institutional Lender (Bank)
Shareholder(s)
2. The company re-loans the money to the ESOP
Trust
1.
Company
2.
ESOP
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ESOP Transaction Leveraged Stock Purchase
Institutional Lender (Bank)
Shareholder(s)
3. The ESOP pays the Shareholder and receives
stock (Owner retires with full CASH value of
stock)
1.
3.
Company
2.
ESOP
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ESOP Transaction Leveraged Stock Purchase
Institutional Lender (Bank)
Shareholder(s)
4. Company makes contributions to the ESOP
Trust (Fully deductible for Income Tax)
1.
3.
Company
2.
4.
ESOP
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ESOP Transaction Leveraged Stock Purchase
Institutional Lender (Bank)
Shareholder(s)
5. The ESOP returns the same to company as
debt service on its loan and the Company pays the
Bank
1.
3.
Company
2.
4.
ESOP
5.
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The Results of this typical ESOP Transaction

• Owner/Founder Retires
• With full value for his/her equity in the company
• Employees have an interest in the company
• Retirement plan
• increased motivation productivity
• Management fully engaged
• Have Capital to take the business to the next
  level
• Motivated still in control of the operation

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What is an ESOP?
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