ESOP

We are focused on closely-held, middle market companies and their shareholders. We deliver the highest level of service with unwavering integrity and consistently meet the goals of our clients.​

An Employee Stock Ownership Plan (ESOP) is an employee benefit plan which makes the employees of a company owners of stock in that company. Several features make ESOPs unique as compared to other employee benefit plans. First, only an ESOP is required by law to invest primarily in the securities of the sponsoring employer. Second, an ESOP is unique among qualified employee benefit plans in its ability to borrow money. As a result, “leveraged ESOPs” may be used as a technique of corporate finance.

An ESOP is funded with tax-deductible contributions by the employer, which can be in the form of company stock or in cash used to purchase company stock. An ESOP operates through a trust under the direction of a trustee or other named fiduciary.

To be an ESOP, the plan must be specifically designated as an ESOP in the plan document. It must also comply with special ESOP requirements of the Internal Revenue Service (IRS).

A qualified, defined contribution, employee benefit (ERISA) plan designed to invest primarily in the stock of the sponsoring employer. ESOPs are “qualified” in the sense that the ESOP’s sponsoring company, the selling shareholder and participants receive various tax benefits. ESOPs are often used as a corporate finance strategy and are also used to align the interests of a company’s employees with those of the company’s shareholders.

Employee stock ownership plans can be used to keep plan participants focused on company performance and share price appreciation. By giving plan participants an interest in seeing that the company’s stock performs well, these plans are believed to encourage participants to do what’s best for shareholders, since the participants themselves are shareholders. Tenor Capital has the experience and knowledge to assist our clients in selling, buying, and leveraging ESOP plans.

The Benefits:

  • An ESOP is a very flexible liquidity alternative (vs. financial or strategic buyers)
  • ESOP transactions can be tailored to meet the objectives of all parties involved
  • ESOPs are a friendly buyer of company stock at fair market value


ESOPs Credit Benefits:

  • Lowest historical default rate of any commercial credit category
  • 0.3% annual default rate for period prior to 2009*;
  • 1.0% to 2.0% for 2009 and 2010*;
  • Principal payments are tax deductible, increasing cash flow to debt service up to 40%
  • Improved company performance and employee retention
  • Highly confidential process with minimal disruption to the underlying business


Large and undeserved market:

  • 11,500+ companies representing more than 10 million employees
  • 500+ ESOPs formed each year
  • 75% are leveraged (estimated $2 billion annual lending opportunity)


New ESOP plans are likely to increase:

  • Capital gains taxes (for sellers) can be deferred and possibly eliminated
  • Principal deduction lowers cost of capital versus traditional financing/sale alternatives
  • Attractive sale option for owners versus sale to strategic or financial buyer
  • Facilitates transfer of ownership to management at compelling valuation to seller in a confidential manner



Tenor Capital has the experience and knowledge to assist our clients in all aspects of selling, buying, and leveraging ESOP plans.

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Tenor Capital Partners
1266 W Paces Ferry Rd Suite 419
Atlanta, GA 30327-2306
Toll Free: 1-800-964-8681
email: info@tenorcap.com

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