ESOPs offer numerous advantages for each of the parties involved.
For Selling Owners:
- ESOPs can offer a market for their otherwise illiquid stock.
- ESOPs offer tax benefits, including the Section 1042 Rollover.
For the Company:
- ESOPs also offer tax benefits for the Company; the ESOP sponsor can deduct its entire ESOP contribution, principal as well as interest, making the ESOP loan essentially tax-deductible.
- ESOPs can also be used as a financing vehicle; a leveraged ESOP can be used to obtain financing for the employer, with a full tax deduction allowed for ESOP contributions used to repay principal as well as interest.
For the Employees:
- The ESOP is a tax-deferred retirement benefit - at no expense to them!
