What Is an ESOP?

The definition of an ESOP varies depending on perspective:

To an owner of a closely-held company, an ESOP is a way to get money out of his company on a tax-advantaged basis and to transition control of his company to key employees or family (insiders).
To the company’s employees, an ESOP is a retirement plan (like a 401k) that allows employees to share in the value of their company.
To the Company, an ESOP is a vehicle of corporate finance that offers tax benefits not available anywhere else in the Internal Revenue Code. Companies involved in an ESOP can deduct loan principal payments, deduct dividends paid and operate as a tax-exempt entity.

You wish to honor and repay employee loyalty
You prefer to maintain the established company culture and your identity as a leader
Your interest is to carry out a liquidity event AND achieve family succession
You would like to “take chips off the table” with a minority shareholder buyout
There is no appropriate market for the company
You insist on maintaining control during and after the transaction process