EMPLOYEE STOCK OWNERSHIP PLANS
WE PROVIDE COMPANIES WITH OR CONVERTING TO AN ESOP WITH THE POWER OF MORE.
About
Business owners looking for a viable exit strategy or wanting to reward their employees by making them business owners should consider forming an Employee Stock Ownership Plan (ESOP).
ESOPs can be beneficial for both owners and employees. Owners who are retiring or exiting the business receive liquidity of their ownership interest. Employees become part owners with future benefits tied directly to the financial performance of their company.
Our ESOP Services
Gray, Gray & Gray provides essential accounting and audit services for companies converting to an ESOP and for those that have already implemented an ESOP plan, including:
- Auditing ESOP plans for ERISA purposes
- Auditing the financial statements of companies that have implemented ESOP plans
- Consulting with clients on how to record the ESOP transactions and related implementation issues
Advantages and Disadvantages of an ESOP
Employees are often more strongly motivated when they own a part of the company, which can lead to increased profits. Employees take a more active interest in company performance because they share in the equity growth created through productivity increases. National studies reveal that on average, ESOP companies tend to be 8% to 11% more profitable than their non-ESOP counterparts.
There are also a few disadvantages to an ESOP that must be considered. Forming an ESOP can be expensive and not feasible for every closely held company. If the value of the company’s shares falls, then employees share the loss and morale may suffer. In addition, if the contribution is in the form of newly issued stock, then the ESOP dilutes current stockholders’ ownership.
ESOPs and Taxes
There are significant tax advantages for both selling shareholders and the post-transaction company. A company can increase profits by paying significantly less corporate income tax than they would have without the ESOP through deductible contributions to the plan. This reduction in corporate income tax will help increase the cash flow and net worth of the company.