The Pros and Cons of ESOPs: Weighing Your Options

When it comes to choosing an ownership transition strategy, owners of closely held businesses have a lot to think about. What transition options are available? And which of these options are a good fit for the goals of both the owner and the company? Clear and cogent answers to these questions can be elusive.

From our experience, we know that exit options can include a sale to a third party, a management buyout (MBO), transition to family or an employee stock ownership plan (ESOP). For many business owners, an ESOP can be an attractive alternative among these options. A host of factors will influence which option is best for each owner’s unique situation, but for those seriously considering an ESOP, it is important to begin with a basic understanding of the pros and cons of an ESOP.