An Employee Stock Ownership Plan (ESOP) is a powerful and effective tool that can be used for addressing many different issues facing closely held banks. For shareholders in a closely held bank, an ESOP can be used as a succession planning or liquidity vehicle. For the bank’s employees, it can provide enhanced benefits useful in attracting, motivating and retaining employees. For the sponsoring bank or bank holding company, an ESOP can facilitate tax-efficient capital enhancement. Most bank sponsored ESOPs own less than 25 percent of the sponsoring bank’s stock. However, a few banks are 100 percent ESOP-owned. An ESOP is not an isolated, stand-alone vehicle. To be successful, it must be integrated into the bank’s overall strategic plan.

Read more: ESOPs: A Powerful Tool for Closely Held Banks – Lexology