What is an ESOP?

An employee stock ownership plan (ESOP) is a flexible exit planning strategy for business owners where the seller receives fair market value and favorable tax treatment on sale, the company receives tax-advantaged financing and enhanced cash flow, and the employees receive valuable retirement benefits and continued employment in a rewarding and motivational environment.

What are the tax benefits of an ESOP?

  • Capital gain on the sale of shares of a C corporation to an ESOP may be deferred by the selling owner as long as, among other requirements, the ESOP owns 30% or more of the corporation’s shares after the transaction and the selling owner invests the sale proceeds in qualified replacement property.
  • The percentage of profits of an S corporation owned by an ESOP are not subject to federal (and possibly state) income tax, because ESOPs are income tax exempt.
  • Contributions by the company to the ESOP (including contributions used by the ESOP to pay principal and interest on a loan) are considered contributions to a tax qualified employee benefit plan and are tax deductible within certain limits.
  • Dividends paid on stock held by the ESOP are tax deductible to a C corporation (but not an S corporation) if they are distributed to ESOP participants or are used to pay principal and interest on a loan.
  • There are estate as well as charitable gifting planning opportunities for the selling owner.
  • Employees receive tax-deferred retirement benefits, eligible for tax-free rollover upon distribution from the ESOP.

Have Additional Questions About the Tax Advantages of an ESOP for Your Company?

Fill out the form to connect with one of our ESOP Advisors to answer your questions regarding ESOP tax treatment, the taxation and sale of ESOP shares, ESOP taxation for employees and more.

BDO’s ESOP Advisors have a wide range of experience in investment banking, tax, valuation, employee benefits consulting, ESOP administration, and commercial banking, including representatives in our wholly-owned investment bank, BDO Capital Advisors, LLC.


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ESOP Case Study

The Challenge

A construction company owner was looking for an exit strategy that would maintain his legacy and continue to reward valued employees.

The Solution

BDO acted as the exclusive financial advisor and facilitated the company’s transition to a 100% employee-owned company.

The Outcome

The company and selling shareholders received tax benefits from the sale and the company’s employees gained meaningful retirement benefits.

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BDO is proud to be an ESOP company


Now that BDO is an ESOP company, our longstanding experience as trusted advisors is enriched with insights gained during our firsthand experience with the ESOP process. This dual perspective allows us to draw meaningful parallels and offer more nuanced guidance to companies considering an ESOP.

Blake Head, Managing Director & ESOP Services Leader, BDO Capital Advisors

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Investment banking products and services within the United States are offered exclusively through BDO Capital Advisors, LLC, a separate legal entity and affiliated company of BDO USA, P.C., a Virginia professional corporation and national professional services firm. For more information, visit www.bdocap.com. Certain services may not be available to attest clients under the rules and regulations of public accounting. BDO Capital Advisors, LLC Member FINRA/SIPC