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Partial Sale
from AC 23 Concurrent Session 3
by NCEO
Cons: - Minority stakes may be valued lower because they are less attractive to buyers (and therefore valuation firms).
- Administration costs are mostly the same whether a full or partial sale.
- Partial ESOPs may have fewer annual ESOP contribution expenses to offset costs.
- Section 409(p) testing can be challenging.
- The ESOP is also entitled to its pro-rata share of any distributions. If the “S” Corp makes distributions to the owner for taxes, the ESOP must also receive a distribution, which may be more than the company wants to contribute.
- “S” corporation distributions paid on ESOP shares are not tax deductible.
