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An ESOP is leveraged if it borrows money to purchase the company's stock. The loan may be from a financial institution or the selling shareholder may finance the transaction by taking back a note for part or the entire purchase price. The sponsoring company usually uses its assets to secure the financing.
This type of ESOP is one in which annual contributions, up to a maximum of 25 percent of the amount of covered payroll, are made each year to the ESOP in stock and/or cash.
The ESOP trust purchases employer stock with the loan, either directly from the company or from its shareholders. The company is then able to make fully deductible principal and interest payments to the ESOP trust that repays the loans. As the loan is repaid, the stock held as collateral on the loan is released to individual employee accounts.
J.P. Morgan’s ESOP Advisory Group closed the deal in less than four weeks to help the natural stone distributor become 100 percent employee-owned.View video about Terrazzo & Marble’s Move to Complete Employee Ownership
The tax and employee benefits offered by ESOPs make them a succession planning option you may wish to consider seriously—here's why.Read article about Is an ESOP Right for Your Business?
Five reasons why an employee stock ownership plan might be the perfect solution for craft breweries.Read article about Is an ESOP Right for Craft Brewers?
Find the answers to frequently asked questions about ESOPs.Learn more about FAQ
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See how we help companies like yours maximize the benefits of an ESOP in our ESOP Advisory Group Capabilities brochure.Learn more about Our Capabilities
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