Employee Stock Ownership Plans (ESOP)

A Retirement Plan Working Overtime: ESOPS as Exit Planning Tools

On the surface, an Employee Stock Ownership Plan (ESOP) is a defined contribution retirement plan utilized by large and small closely held companies as well as a few publicly held companies. Look closer, and they are also excellent exit planning mechanisms for business owners while providing benefits for your employees in the future. ESOPs remain some of the more underutilized strategic planning tools available to business owners. There are more than 150 ESOPs in Georgia and the number of private company ESOPs is growing throughout the United States nationwide even though public company ESOPs are declining as a result of mergers. There are many benefits to establishing an ESOP, such as business stability, lower turnover, a gradual exit and source of cash flow for the owner, and substantial tax incentives. Our team is on the cutting edge of ESOP-related topics as an active member of The ESOP Association, National Center for Employee Ownership (NCEO), the New South Chapter of the ESOP Association, and the Georgia Center for Employee Ownership (GACEO). Established relationships with other ESOP professionals, such as trustees, third-party administrators, attorneys, and financial institutions means you can have the most knowledgeable team possible no matter what the stage of your ESOP.



Windham Brannon has a team of professionals focused on delivering ESOP consulting and compliance services.

Donna Caruso
Principal, Audit

Phone: 678-510-2752


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Because ESOPs are tax-free, they offer a wide range of potential tax benefits to departing owners as well as benefitting the employees with ‘ownership’ in the Company As part of a multi-year structured exit plan, an owner can sell his or her shares back to the ESOP and potentially defer and possibly even avoid capital gains taxes. Other options include ESOPs as financing tools to buy out the owner or other partners. Windham Brannon helps business owners compare and analyze various tax impacts when an ESOP is a part of or all of an exit strategy.

Deciding on the structure and use of other incentives, such as warrants and stock appreciation rights, requires an understanding of how each decision will impact the financial statements. In addition, a plan set up as unleveraged or leveraged has different treatment within the financial statements.   Nonleveraged ESOPs don’t borrow money to purchase shares as the company contributes shares to the plan, whereas leveraged plans do.  Windham Brannon can help plan sponsors consider the impacts of plan structure, the pros and cons of each according to that specific situation, and the required footnote disclosures.

Although ESOPs are great retirement plans and exit strategies, the accounting treatment of the structure and any related incentive needs to be carefully considered because of the substantial impact it can have on a company’s accounting position. Windham Brannon can assist with analyzing the complexity of the transaction and many moving parts to advise on the accounting impact and appropriate financial statement treatment.

Like other retirement plans, ESOPs mandate that plan sponsors have a fiduciary obligation to manage the plan with participant interests as the priority. Part of this responsibility is ensuring that the plan has an independent third-party audit according to the number of participants (typically over 100 at the beginning of the plan year). Windham Brannon can assist plan sponsors with required Department of Labor audits or if an audit is not required but a sponsor would like a second look at their plan, a consulting engagement

Once the plan is established and funded, then what? Under ERISA and the IRC, ESOPs must follow annual reporting and auditing requirements and be careful not to violate any nondiscrimination rules. While this is an area where a third-party administrator primarily assists plan sponsors, Windham Brannon works with plan sponsors and their third-party administrators to ensure that plans meet at least minimum requirements for participation, vesting and distribution, and employer contribution limits. Additionally, assistance in determining a formula for allocating contributions, following investment rules, and other compliance issues are all areas of expertise where our team can consult with plan sponsors and their third-party administrator.

ESOPs, as tax-exempt financial vehicles, are valuable tax incentives as part of a larger company sponsor strategy. They offer company plan sponsors tax deductions for contributions to the plan subject to certain ERISA and IRC limitations. Planning is critical when a company is only partially ESOP-owned or is a C corporation. Windham Brannon will analyze a company’s tax position before and after a potential transaction, including deferred income, accelerated contribution deductions, accounting method planning, bonuses and dividends, and post-transaction assistance.


Whether your business has an established Employee Stock Ownership Plan (ESOP) or you are considering transitioning your ownership through an ESOP, our highly knowledgeable team is here to help. Windham Brannon’s years of experience is invaluable when advising on the challenges and opportunities of designing and structuring the ESOP transaction and coordinating with other ESOP professionals to get the best outcome for your situation.



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