Leveraged ESOPs and Employee Buyouts

An ESOP (employee stock ownership plan) is a tax-qualified benefit plan that is designed to invest primarily in company stock. Among other things, an ESOP can be used to purchase shares from retiring owners in closely held companies; buy out divisions, product lines, or entire companies; finance new capital; and provide a tax-advantaged employee benefit. There are over 11,000 U.S. companies with ESOPs, covering well over 8 million employees.

Many ESOPs are leveraged, meaning that the plan borrows money on the employer company's credit to buy company stock. It is the only qualified employee benefit plan that can do this. Moreover, the company can deduct ESOP contributions it makes for both principal and interest payments for the loan, and owners of closely held C corporations who sell to an ESOP can avoid paying capital gains tax on the sale proceeds by reinvesting them in qualifying U.S. securities.

Written by leading experts, this book is a practical tool for business owners, managers, and advisors dealing with both public and private companies. It covers contribution limits, valuation issues, accounting, the tax-deferred "rollover," due diligence, feasibility, employee buyouts, multi-investor issues, mergers and acquisitions, and other relevant topics. The book is designed to be used by both public and private companies as well as their professional advisors. (Note: This book is about the U.S. ESOP, not plans called "ESOPs" in other countries.)

The fourth edition has been revised to reflect the changes in ESOP law made by the Economic Growth and Tax Relief Reconciliation Act of 2001.