When times are bad for an IPO, small businesses are finding it hard to sell their stocks to external stock buyers. In such a case should they opt for the ESOP- Employee Stock Ownership Plan in which they sell off their stock ownerships to their employees? The ESOP project was originally introduced to abate employee hassles and to ensure better performance from the employees. If you are contemplating the ESOP, here are some points that you need to consider before taking the step.
Does An ESOP Suit You?
Consider an ESOP when you want to sell off your company. An ESOP is a good option for you because you can sell it off gradually in small steps. The minimum criterion requires the owners to relinquish at least 30 % of their ownership to the stock owners. Now this is something that many owners may not like. ESOP gets you tax benefits but the amount of expenditure involved in an ESOP which is about 5 % of the selling price of the stocks is very high. If you think an ESOP is profitable after considering these factors you can always go for it.
Make Your Decision for ESOP Public
If you intend to go for an ESOP for your company, make sure that you tell about this to all the other joint owners of the 
company if required. However, if you are the sole owner of your company you’ll not need this step. The other owners should also be willing to sell their shares. Its not mandatory for the employees to be told of your intentions to go for the ESOP but it is always better to keep your employees aware of it because they might be interested in availing the opportunity that is being presented to them . They should also be told that they have the liberty to opt for the program if they wish to, whenever they want to.
Assess Feasibility of Your ESOP Project
Before you start implementing your plan you should always find out if it can successfully work for your organization. For this you can hire the services of an ESOP agent. Some businesses might just need to review their business plans, while others might need to go a step ahead and consult the management, go for market analysis and find out if the ESOP is indeed a profitable venture for the company.
While going for an ESOP, in all probability, you need to take a bank loan. For that, you’ve got to give a clear image of your project and your company to the bank. Otherwise getting a loan will be problematic for you. You should provide your statement of cash flow and payroll estimations. The cash flow should be able to manage the ESOP. This might increase the payroll to more than 25%. Your company should also be in a position to buy back the shares in case the employees leave.
After this initial groundwork, you should get your ESOP plan appraised from an authentic expert. You should draft an agreement with your employees and then find finances to mobilize your plans. Also you set up a special panel of directors to manage the ESOPs.
