Optimize the sale of your business–
preserve and protect what matters most
Private Wealth Management

The ESOP Group


phone

877-794-1042
404-479-6030



phone

877-806-9719





address

Terminus 100
3280 Peachtree Road NE
21st Floor
Atlanta, GA 30305



The personal and financial impact of selling your business
At The ESOP Group, we understand the emotions that come with owning and growing a successful company—and the concerns that often arise when transitioning your ownership role. In fact, since 1989, we’ve helped hundreds of clients throughout the country clarify their business succession goals. They have trusted our expertise to help them create the best outcomes for their families, their employees and those next in line.

Advice for your broader wealth management plan
While many of our clients initially come to us for our ESOP insight and execution, we view that transaction as part of the larger scope of your wealth management strategy. Our experienced team is well-versed in addressing the complex wealth advisory and planning challenges affluent investors face. To us, there’s no greater priority than providing the advice you need to make well-informed decisions to preserve and protect what matters most.

“We’ve learned over the last 25 years that, to our clients, business is personal. And the decision to sell is never easy. More often, it’s life changing—for owners, their families and the future they’re shaping.

That’s why we believe so strongly in what we do and how we can help you successfully take that next step—in business, but also in life..”

— Keith A. Mericka


The ESOP basics

What is an ESOP?

Employee Stock Ownership Plans (ESOPs) can provide tax-efficient estate planning opportunities for closely held business owners by creating liquidity for their shares and business succession options for their families and employees. An ESOP is a qualified retirement plan designed to invest primarily in stock of the employer. ESOPs provide tax advantages to the employees and employer. The Internal Revenue Code provides tax incentives for business owners to sell their company stock to the ESOP and provides benefits to employees by allowing them to participate in the growth and success of the business while having the option to receive company stock through a tax-deferred vehicle.

 
How does an ESOP work?

Employee Stock Ownership Plans (ESOPs), created by ERISA in 1974, are tax-efficient exit strategies that enable business owners to monetize the wealth in their privately held business and defer, or with proper planning, potentially eliminate the long-term capital gains tax triggered from the sale.

Provided certain requirements are met, the ESOP can also borrow money to purchase new or existing shares (referred to as a “leveraged ESOP”). Shares in the ESOP trust are allocated to separate accounts for the employee participants. ESOPs must give participants the right to have the employer repurchase employer stock in exchange for cash (unless there is a public market for the stock).

 
How are ESOPs taxed?

There are many tax benefits to the company, the owners and its shareholders.

A C-Corp can deduct contributions to the plan, including principle and interest related to the ESOP loan, dividends paid on stock held by the ESOP and, most importantly, selling shareholders can elect to defer capital gains taxation if eligible for section 1042 provided certain conditions are met, including:

  • The ESOP owns 30% of the company after the sale
  • The proceeds are invested in Qualified Replacement Property (QRP)

QRP includes stock, bonds and other debt issued by most, but not all domestic (U.S.) operating companies. The disposition of the QRP will trigger the deferred tax on the gain. As a result, the investment strategy for the sales proceeds can be critically important.

For S-Corps, earnings on stock held by the ESOP are tax-free. As an example, a 100% S-Corp owned ESOP pays no federal or state income tax. Why? Because the sole shareholder is a tax-exempt ERISA retirement plan.

 
What is Internal Revenue Code section 1042?

Internal Revenue Code of 1986, as amended (Code), section 1042, allows an owner of a closely held C corporation to defer, or potentially eliminate, capital gains taxation on “qualified securities” he or she sells to an ESOP if the taxpayer reinvests the sale proceeds into “qualified replacement property” (QRP). QRP includes certain stocks, bonds and/or other securities of operating companies incorporated in the United States and meeting other tests. If the QRP is held until the death of the taxpayer, the QRP transfers to the taxpayer’s heirs with a stepped-up cost basis and thus, the gain on the stock sale to the ESOP has favorable tax treatment for federal capital gains taxation purposes and for many state capital gains taxation purposes.


Guiding you through business succession

Is the ESOP transaction right for you and your company?
So many factors—with both short- and long-term consequences—come into play when you’re considering selling your company. But to gain the greatest benefit for you, your family and your legacy, you shouldn’t make a decision of this magnitude alone.

At The ESOP Group, we have a disciplined process of asking questions and listening, gathering information and planning/modeling various scenarios. We’ll help you understand all aspects of this life-changing event that could result in one of the most significant liquidity transactions you’ll ever make.

Here are some of the questions to consider before you make your ESOP decisions:

  • Do you know the true equity value or fair market value of your company?
  • What plans do you have to monetize a lifetime of work?
  • If there is a way to sell part or all of your company, retain some control and help minimize your tax liability, would you be interested in learning more?
  • Have you recently had your business valued by an external independent appraiser?
  • What plans do you have to extract a portion or all of the equity from your company?
  • Do you have a formal exit strategy in place to enable you to leave the business when the timing is right?
  • Do you want to continue to control your company even after selling all or a portion of the business?

Before the sale
Our involvement well ahead of the ESOP event will help ensure a smooth and successful transaction. That means optimizing the ownership structure and properly timing the transfer of wealth to help reduce unnecessary tax burdens. Pre-sale, we focus on:

  • Understanding your current situation and objectives to identify obstacles and challenges
  • Collaborating and sharing perspective with your legal and tax counsel to align our recommendations for your estate plan
  • Coordinating introductions to qualified growth/ liquidity capital providers and other transaction professionals
  • Discussing philanthropic goals and wealth planning options

During the transaction
As you progress through your transaction, we work with your trusted advisors, developing detailed cash flow models and addressing your wealth preservation, philanthropic and legacy goals. During your transaction, our process includes:

  • Presenting financial and cash flow plan
  • Modeling various customized qualified replacement property (QRP) Internal Revenue Code (IRC) section 1042 portfolio reinvestment alternatives
  • Determining the final QRP allocation
  • Evaluating QRP financing
  • Designing portfolios consistent with income needs and risk appetite
  • Analyzing life insurance coverages and providing recommendations

After the sale
Having advised on more than 600 transactions involving section 1042 of the Internal Revenue Code, we can provide customized Qualified Replacement Property (QRP) and lending solutions that seamlessly integrate your longterm wealth goals. As we assess your ongoing wealth management needs, where appropriate, we can provide an independent review of any existing financial plan, including introductions to trusted legal and tax experts. Here’s what to expect after the sale:

  • QRP implementation
  • Comprehensive wealth management, including estate and philanthropic planning

Employee Stock Ownership Plan (ESOP) resources


Delivering wealth planning for today and tomorrow

Comprehensive post-exit wealth management is as critical to our clients’ success as the ESOP transaction itself. We view the successful execution of your ESOP strategy as a starting point for important planning conversations—from estate and legacy planning to portfolio management and charitable giving. As Private Wealth Advisors, we have the expertise and resources to assess the potential impact of your sale. Our goal is to help you make wellinformed decisions for the long term that help protect and preserve all you’ve achieved.

  • Estate and legacy planning

    As part of our wealth management approach, we will coordinate with Private Wealth trust and estate planning specialists to review all components of your estate plan. From the management of your estate tax exposure to life insurance solutions, we’ll make recommendations that are strategically aligned with your wealth preservation, transfer and legacy goals.

  • Investment management

    We’ll work with you to tailor a prudent investment allocation that seeks to lower volatility while taking advantage of potential market opportunity. Our ongoing monitoring and review of your portfolio helps us measure your portfolio’s progress and assess where adjustments may be needed.

  • Philanthropy

    We recognize that with great wealth comes great responsibility. Through the use of private foundations, donor-advised funds or other charitable vehicles, we can help you carry out your philanthropic mission and make a meaningful impact in the world.


Keith Mericka and Leslie Lauer have been recognized as industry leaders.

  • Keith Mericka, Barron's Top 1,200 Financial Advisors, 2014, 2015, 2016, 2017
  • Keith Mericka, Financial Times Top 400 Financial Advisers, 2013, 2014, 2015, 2016
  • Keith Mericka, Barron's Top 1,000 Financial Advisors, 2009, 2010, 2011, 2012, 2013
  • Keith Mericka, WealthManagement.com Top 100 Wirehouse Advisors, 2011, 2013, 2014, 2015
  • Leslie Lauer, Financial Times Top 400 Financial Advisers, 2017
  • Leslie Lauer, Forbes Top 200 Women Advisors, 2017
  • Leslie Lauer, Barron's Top Women Financial Advisors, 2016, 2017
  • Leslie Lauer, WealthManagement.com Top 50 Wirehouse Women, 2015



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Creating a legacy that lasts

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