ESOP & IPO

Employee Stock Ownership Plan

An ESOP provides an opportunity for an owner to:

use pre-tax dollars to finance company growth and/or create ownership liquidity
sell a portion of his/her stock, but still maintain control of the company, and indefinitely defer capital gains on the stock sold
repay some or all of his/her principal investment with tax deductible dollars
provide an incentive to attract, retain and motivate key employees
enable employees to acquire an ownership interest in the company
acquire other companies with tax-deductible dollars
provide business continuity for the company he/she has grown and nurtured over the years

A University of Michigan study found companies with significant employee ownership are generally 1.5 times more profitable than comparable firms in their industry with no employee ownership. And this profitability accumulates year after year.

Initial Public Offering

From 1980 to 2001, the number of U.S. companies ‘going public’ exceeded one per business day. The number of IPOs per year ranged from fewer than 100 to more than 400. These IPOs raised more than $488 billion, with an average of $78 million per company.

Why do most companies go public? The founders and shareholders wish to raise capital for the company and create a public market to convert their shares into cash at a future date.

The idea of ‘going public’ sounds exciting and attractive to most business owners. However, after evaluating the arduous and expensive public reporting requirements and change of management style required, few decide to pursue the process.

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