ESOP for Contractors Podcast
A podcast series created to help construction company owners decide whether an ESOP is right for them. Brought to you by Tenor ESOP Partners. Includes real-world examples.
Gary Gray
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FREE Guide!
Maximizing the Value of Your Contracting Business with an ESOP: A Financial Perspective
Plus, Your Path to Becoming a Tax-Free Company
What an ESOP will do for you and your contracting business
An ESOP allows you to enjoy a sale that benefits both you and your employees by design, offering significant advantages:
- Protect your culture and team, ensuring your legacy outlives the name on the door
- Retain control post-closing until you’re ready to turn over responsibility
- Highly favorable tax treatment for the business and the shareholders
- Qualified retirement plan that also takes care of the team you’ve built
- Guaranteed fair market value for shareholders
- Flexible and customizable
- An opportunity to build incentive plans for future leaders
- Give your employees the gift of ownership without personal risk, and the ability to affect the value through their efforts on the job or in the office
ESOP FAQ's
What is an ESOP?
An ESOP is a qualified retire plan that invests solely in the stock of the sponsoring company. Over time, employees accumulate shares, which they can cash out upon retirement, departure, or under other circumstances defined by the plan.
How does an ESOP work?
- Formation of the ESOP Trust: A company sets up an ESOP trust, which will purchase the shares on behalf of employees. The company typically funds this trust through future earnings.Financing the ESOP: The ESOP trust can buy shares solely through future earnings or by borrowing money. The company then repays the loan, with tax-deductible contributions, over time.Allocation to Employees: Shares in the ESOP trust are allocated to individual employee accounts, based on total employee compensation.Vesting Schedule: Employees earn the right to the shares over a vesting period, which can range from three to six years or more, incentivizing them to stay with the company.Exit and Distribution: When employees leave the company, retire, or otherwise separate, the company buys their shares back at fair market value, providing them with a significant retirement benefit.
Why should I consider an ESOP for my business?
- Succession Planning: ESOPs provide an orderly and flexible exit strategy for business owners who want to retire without selling to outside buyers.Tax Advantages: ESOPs offer substantial tax benefits. Contributions used to repay the ESOP loan are tax-deductible, and owners selling to an ESOP in a C corporation can defer capital gains taxes under certain conditions. An S-Corp ESOP structure offers substantial tax advantages, including the ability to eliminate or greatly reduce federal income taxes, make deductible contributions to the ESOP, and potentially defer capital gains tax on stock sales through certain strategies.Employee Motivation and Retention: ESOPs can boost employee morale, productivity, and loyalty because employees have a direct stake in the company’s success.Preservation of Company Culture: Selling to an ESOP ensures that the business remains in the hands of those who understand and value its culture, which is often a key concern for founders.Access to Financing: ESOP-owned companies may have better access to financing due to tax advantages, which improve cash flow and make loan repayment more manageable.
What's the role of consultants for an ESOP?
Determining if an ESOP is a Good Fit
Are ESOP for Contractors and Tenor ESOP Partners different companies?
ESOP for Contractors is the dedicated construction practice of Tenor ESOP Partners, who are leaders in the ESOP advisory industry.