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Is an ESOP The Right Transfer Strategy for You and Your Private Company?

September 23, 2020 3 Min Read Transfer & Exit, Transition/Exit Planning
Mario O. Vicari, CPA
Mario O. Vicari, CPA Retired Director

How an ESOP Can Meet Your Transition Goals

As private company owners deal with the succession and transfer of their businesses, we are seeing an increasing interest in using an employee stock ownership plan (ESOP) as a transfer strategy.

Determining your transfer strategy is a very complex process that takes time, analysis, serious thought, and good advice. This assessment is multi-faceted and involves the future of the company and its employees, financial considerations, family considerations, legacy issues, and the owner’s role at the company.

If the answers to the following questions resonate with you, you may want to give serious consideration to pursuing an ESOP for your transfer strategy.

  1. Do I want more control of the transition and succession process? An ESOP sale provides a reasonably high level of control to the existing owners. The exiting owner has the ability to decide the timing of the transaction, the amount of the company to be sold (100 percent or a minority stake), continuity of the management team, and their own ongoing role in the company.
  2. Do I have multiple transfer objectives? An owner’s transfer strategy always involves money, but money is rarely the only factor in the decision. Many owners have grave concerns about what will happen to their business, its legacy, and its people in a third party sale. These concerns are real, and an ESOP can help address them.
  3. Do I want flexibility in my transition plan? An ESOP sale does not need to be for 100 percent of the company’s stock; the transaction can be for a minority stake. Many owners like this option because they can “test drive” the strategy a bit to see how it works and make sure that they are comfortable with the approach. Selling a minority stake (or a series of them) can allow an owner to execute their succession and transfer plan over many years.
  4. Do I want to diversify my wealth? For the owner who is not ready to retire but has the bulk of their net worth in their company’s stock, an ESOP sale can provide the best of both worlds. The partial sale of stock to an ESOP allows the owner to invest the proceeds elsewhere and diversify their risk without taking any drastic steps in terms of their day-to-day role at the company.
  5. Do I want to gradually change my leadership role at the company over time? One of the biggest issues in an owner’s transfer strategy is the their ongoing role at the company. A sale to an ESOP allows the owner to get some liquidity but requires no change in their role after the transaction. This means the owner can adapt their role over time and on their terms.

ESOPs are complex, and there are certainly many issues to consider with an ESOP transaction. However, if you have been asking yourself some of the above questions, an ESOP might represent a solid transfer strategy.

Mario Vicari, Kreischer MillerMario O. Vicari is a director with Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email.   


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Mario O. Vicari, CPA

Mario O. Vicari, CPA

Retired Director

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