An employee stock ownership plan is a qualified retirement plan that invests primarily in employer stock, and it can be the buyer in a business sale.

Structure. The plan trust borrows to purchase shares from the owner; the company makes deductible contributions used to service the loan; shares are allocated to participant accounts as the loan is repaid.

Seller benefits. A market for shares in a company with no other buyer; potential deferral of gain on the sale where conditions are met; and continuity of management and culture.

Company benefits. Deductible contributions of principal as well as interest, and, where the company is taxed as a subchapter S corporation wholly owned by the plan, an entity effectively exempt from federal income tax.

The fiduciary problem. The trustee must pay no more than adequate consideration, determined by an independent appraisal. Valuation is the most common subject of enforcement, and the trustee must be genuinely independent and must negotiate.

Ongoing obligations. Annual valuations, repurchase obligation for departing participants which must be modelled and funded, plan administration and reporting.

Where it fits. Profitable companies with steady cash flow, depth of management, and an owner willing to accept a fair rather than a strategic price.