Sustainability is a concept that captures our ability to keep something going. In an ESOP company, the concept relates specifically to perpetuating the ESOP while maintaining the health of the business. This paper will discuss the elements that need to be examined when creating a strategy for a sustainable ESOP company. Furthermore, the tools and levers that can be utilized to optimize an ESOP company’s sustainability plan will be explored.
ESOP sustainability is not a new concept, but it has gained momentum in recent years. This trend has been driven by the following two factors. First, many ESOP companies are now mature—meaning most of the shares in the ESOP trust are allocated, and the company’s value may have also grown significantly since the initial transaction. Secondly, many companies are electing the 100% S corporation ESOP structure in order to recognize the associated tax benefits, and they desire to remain an ESOP in the long-term. For both of these reasons, there is a strong desire to develop a strategy that will allow a company to meet both its corporate goals and maintain the health of its ESOP as a benefit plan, cultural tool and value enhancer.
Franco Silva is a Director at Prairie Capital Advisors, Inc. He can be contacted at 312.445.9213 or by email: fsilva@prairiecap.com.
