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Client Assessment

5 common ESOP myths

Understand the facts and inspire clients to take a closer look

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Do you have a client who you think would be a good fit for an employee stock ownership plan (ESOP) but that client has some doubts? You’re not alone. It’s not uncommon for clients to be misinformed about ESOPs. Unfortunately, those myths can deter clients from considering an ESOP for their succession planning needs.


But often with a little information, you can help your clients realize why an ESOP may be a good fit for their business. Let’s break down the five most common myths or misconceptions we hear so you can better inform your clients.

Myth #1

"I’ll lose control of the company."

Fact: An ESOP doesn’t change who runs the company. An appointed ESOP trustee votes the shares on behalf of retirement plan participants. The current owner, board and/or management may continue to run the company even when the ESOP owns a majority of shares.

Myth #2

"I’ll have to sell the entire company."

Fact: An ESOP is a flexible business transition method. It allows a business owner to decide how much of the business to sell and when to transition ownership. 

Myth #3

"I can make more selling to a third party."

Fact: Many times the net proceeds to an ESOP will actually be higher when you factor in the transaction costs and the seller's tax treatment.

Myth #4

"Employees won’t understand or appreciate it."

Fact: Because the majority of the plan’s assets are company stock, it may actually be easier to understand an ESOP than other retirement plans. Employees can see their account balance change over time and many ESOPs have communication and education plans for their participants. 

Myth #5

"ESOPs are just for large companies."

Fact: Companies with as few as 30 employees can benefit from having an ESOP. Because there are ongoing costs to operating an ESOP, it’s important to make sure the client’s business is financially sound, well-established and valued high enough to enjoy the benefits of an ESOP without being affected by the cost. To see if your client is a good candidate for an ESOP, answer 4 quick questions.
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Once your clients understand the facts about ESOPs, they may gain the confidence to take a closer look.
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Next steps

When your client is ready to talk about ESOPs, we’re here to help you. E-mail our Advisor Support Team or call 800-952-3343, option 2.