An employee stock ownership plan ("ESOP") is a qualified retirement plan that can serve as a tremendous business succession tool for business owners of privately held corporations.

Imagine the scenario in which a business owner spends 30+ years of his working life creating and growing a successful privately held business. After a successful run, this owner whose children have little interest in taking over the business decides to cash out and sell his stock in the business to a private equity firm. Before inking the deal, the business owner who wants to stay active in the business negotiates a two year employment agreement for himself and tries to protect the employees by including a provision in the purchase agreement that states the company must remain in the same facility for the next three years. As you might imagine, two years after the business owner sold the business, the private equity firm (the now owners of the company) decided not to renew the business owner's employment agreement - forcing him to retire at the age of 62. A year after forcing the business owner out of the company, the private equity firm decided to consolidate business operations and move the company some 300 miles away - causing most of the employees to lose their jobs with the company.

Had this business owner sold his company stock to an ESOP, the above result would never have occurred.

A business owner can monetize his or her capital investment in their business by selling some or all of their company stock to an ESOP and still maintain an active role in the business that he or she created.  Moreover, the business owner can maintain and protect the job security of the employees and provide them with a supplemental retirement benefit. In fact, empirical data proves that ESOP owned companies are more profitable and have lower turnover rates than non-ESOP companies.