An employee stock ownership plan (ESOP) are utilized by private equity (PE) firms and business owners as an alternative exit strategy to structure a business sale or acquisition. PE firms collaborate with ESOPs to secure investments and use it as a form of exit strategy for current portfolio companies. Majority owners can also use ESOPs as a means to transition ownership in a management buyout. The article will present an overview of ESOPs including the purposes, characteristics, structures as well as the benefits and disadvantages of structuring an ESOP. Overview ESOPs are tax-qualified retirement plans subject to the Employee Retirement Income Security Act of 1974 (ERISA) and are used in transactions for acquisitions. In a transaction, ESOPs can be used to buy shares and to acquire 100% of a company’s stock in one transaction. The main aspect of the ESOP is that it must be invested in employer stock. Purposes Utilized in the succession organizing of a company’s…
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