I am excited to share with you an incredible win-win opportunity for you and your clients: ESOPs, or employee stock ownership plans.
With an ESOP, your clients can:
o Obtain liquidity for some or all of their shares tax deferred,
o Reduce or even eliminate most future corporate income taxes,
o Provide a great retirement benefit for their employees at no additional cost to the employees, and
o Still retain control of the company.
Furthermore, every ESOP transaction provides the need for many financial products for you to sell that pay commissions.
o When an owner sells to an ESOP, the owner receives cash and must reinvest that cash.
o When there is a sale to an ESOP, you have to revise the buy-sell agreement because you have new owners. Often they need more buy-sell insurance for remaining shares.
o Because an ESOP is a business succession planning transaction, we need key-person life and disability insurance for the next generation of management. If something happens to key individuals, the owner will be at a loss from a planning and financial standpoint.
o For the same reasons, the owner needs to protect against next-generation managers leaving on their own. So, we need to look at golden handcuffs and other executive compensation planning ideas for these people.
o Next the selling owners may need a nonqualified plan if they continue with the company.
o Because the selling owners’ assets have changed, they need to review their estate plans and often have cash for their charitable giving. I have heard hundreds of owners tell me, “I am unique. I have provided enough for my family. What I would like to do is sell my business to my employees and give some or all of the proceeds to charity.”
o The ESOP needs financing. The bank may require additional insurance on the owners and executives.
o The company will have to repurchase the shares from employees in the future. In many cases, this obligation should be funded by insurance or a sinking fund.
o Oftentimes, clients will move their 401(k) to my company to have a single company administer their ESOP, nonqualified plan and 401(k) plan to receive all of their retirement benefits on a single platform, Website and statement.
As an advisor, you can receive commissions from each of these products. So, the fact that you cannot get a commission on the sale of the ESOP is quickly surpassed by the incredible opportunities that occur as a result of the sale.
And the best part is that you have an independent consultant–me–telling the clients that they need these additional products and that they should talk to you because you are the expert in providing these financial products.
Steps To An ESOP