In reality, ESOP “light” is not an employee stock ownership plan (ESOP) at all. It is a way of structuring a retirement plan to provide many of the benefits of an ESOP, while avoiding all of the complexities and costs of implementing an ESOP. It is designed to address the needs of the retiring owner of a small business that is too small to implement an ESOP in a costeffective manner and has limited third-party suitors for the business.

The most viable business succession option for many of these small businesses is to sell to one or more key employees who have been instrumental to the success of the business or who have been hired with the promise and/or expectation of earning an equity position through their efforts. Aside from the possibility that the key employee may decide to seek greener pastures, the problem with this strategy is that many do not have the funds to purchase any significant portion of the business. Most expect to be “awarded” the shares in exchange for their past and future efforts.

Read more at: ESOP Light: A Creative Succession Strategy For The Small Business – Employment and HR – United States