ESOPs offer many benefits to companies and employees, including more team buy-in, increased staff productivity, new capital for the company, and tax benefits for the company.
How ESOPs can increase productivity, retention, and engagement
A recent study found that the average company with an ESOP had higher earnings-per-employee than companies without ESOPs. Also, the study shows that companies with an ESOP tend to have less employee turnover and more employee engagement.
How ESOPs can act as a source of capital
By selling shares to employees in an ESOP, the company ultimately receives a new source of capital. By allowing employees to build equity in the company, the company in-turn can raise funds from employees in a low-threshold manner.
Tax benefits of ESOPs
A primary tax benefit of having an ESOP is that associated costs of the plan are tax-deductible. This includes expenses such as legal and financial consulting fees, as well as the costs of setting up and administering the plan.
Companies can also deduct contributions made to the ESOP each year, up to a limit of 15% of payroll.
Are there any drawbacks to setting up an ESOP?
Costs of an ESOP
There are set-up and administration costs of an ESOP plan. These costs can include legal and financial fees, as well as the cost of setting up the trust and administering it on an ongoing basis.
The ESOP Alliance simplifies and streamlines this entire process. Visit our pricing page to learn more!
Laws and Regulations of an ESOP
There are a number of laws and regulations that must be followed when setting up and running an ESOP. Failure to comply with these can lead to significant penalties, so best to brush up before you start.
To connect with ESOP legal experts, contact us above!
To learn more about how ESOPs help startups, and potential challenges, read more here.