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For construction companies structured as corporations, an Employee Stock Ownership Plan (ESOP) can be a powerful succession tool. An ESOP is a qualified retirement plan, similar in many ways to a 401(k), which invests primarily in the employer’s stock.
Tax-deductible contributions are used to buy stock (typically from exiting owners) and credited to employees’ accounts. When employees become eligible, distributions are made in stock or cash. These arrangements offer several attractive benefits:
But ESOPs have risks, as well. For example, closely held companies must conduct annual stock valuations and participants must receive a “put” option allowing them to sell stock back to the company at fair market value. It’s important to consider the potential impact of stock repurchase obligations, as well as ESOP debt, on your construction company’s cash flow and bonding capacity.
Are you considering an ESOP? Contact our experts for more information.
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