Benefits and Misconceptions of ESOPs

Most of the assets that are owned by members of the baby boomers generation are located within the corporations that they own. These owners and others can unlock the value of their business assets by using a ESOP or an employee stock ownership plan. This is a “qualified defined contribution retirement plan that invests primarily in the stock of the sponsoring corporation.” However, there are several misconceptions about the use of ESOPs that prevent most people from using them. Here are the most common misconceptions.

• First, the owner of the ESOP will not lost control of the company because the retirement plan does not change the corporate governance of the company, and so control remains with the board of directors.
• Second, the owner will not need to sell the company either. The owner has the ability to sell partial interests, and it is at the discretion of the business owner.
• Third, the disclosure that the ESOP is required to make is an annual statement that provides information on the number of shares held for each person’s benefit.
• Fourth, costs for transactions of ESOPs are the same price as normal sales to outside parties. It is important to reminder that the costs incurred are based upon competitive rates, and thus this may help lower the costs that the business might incur.

See Jerry Ripperger, Seven Misconceptions About ESOPs, AdvisorOne, May 22, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.