Healthcare Employee Stock Ownership Plans
Preserve Your Practice, Reward Your People: ESOPs Deliver a Legacy-Driven Exit
When physician-led care matters, an ESOP protects what you've built and shares it with those who helped build it.
What if you could sell your practice for fair market value, maintain a meaningful role in your practice as long as you want, while securing the future of your business and its employees?
An Employee Stock Ownership Plan (ESOP) lets you sell your practice at fair market value while keeping ownership with your team. Unlike stock options, an ESOP is a qualified retirement plan that buys out your equity over time—funded by the practice’s own tax savings. You get paid, your team gains ownership, and the business keeps its culture
With an ESOP, the Entire Practice Benefits..
OWNERS
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An ESOP allows you, as a practice owner, to sell a portion of your equity back to your employees, at no cost to them, providing a source of financial liquidity. This can be particularly valuable if you are looking to unlock the value of your business without selling to an external entity like Private Equity firms or third-party buyers.
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Implementing an ESOP enables you as an owner to plan for retirement by selling anywhere from 30% to 100% of your equity to the ESOP. This phased approach allows for a smoother exit strategy while ensuring the continuity of your practice's operations.
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ESOP transactions often come with tax advantages. You may be eligible for capital gains tax deferral or exemption, enhancing the financial benefits of utilizing an ESOP as your equity transfer mechanism.
EMPLOYEES
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With no money out-of-pocket, your employees participate in equity of the company over time, giving them a sense of ownership and a vested interest in the practice’s success.
As owners, your employees' financial rewards are tied to the practice’s performance. If the practice does well, the value of their ESOP shares can increase.
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Your employees don't have to contribute their own money to the ESOP. Instead, they accumulate shares in the practice through service over time. As the value of the practice grows, so does the value of their retirement savings. This can serve as a powerful incentive for long-term employment and commitment.
ESOPs also provide your employees with a unique investment opportunity, diversifying their retirement savings beyond traditional options like 401(k) plans.
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If you as an Owner are contemplating a transition or exit strategy for your medical practice, an ESOP emerges as a powerful tool that safeguards your staff's employment. It offers a well-structured method to sell the practice to committed physicians and/or employees, sparing them from the burden of raising capital independently or being subjected to the uncertainties of Private Equity firms.
This guarantees the uninterrupted provision of care and enables you to gracefully phase out of the business while retaining a meaningful connection to its ongoing success and the prosperity of your practice.
PRACTICE
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Employees becoming partial owners through an ESOP tend to be more motivated and engaged in the success of the practice. This can contribute to enhanced productivity, improved patient care, and overall practice stability.
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Offering an ESOP can be a powerful tool for attracting and retaining top talent in the competitive healthcare industry. Attract and retain physicians and valued team members with a path to ownership by earning stock over time, at no cost to them.
Implementing an ESOP requires careful planning and communication, but the potential benefits for both you as the owner and your medical practice team can be substantial. It's a strategy that not only helps secure the financial future of your employees but also fosters a culture of collaboration and shared success within your practice.
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ESOP-owned practices gain tax advantages, and a fully ESOP-owned practice can operate income-tax-free. Practices gain tax deductions equivalent to the ESOP sale value. In cases where the ESOP is used to finance the purchase of shares from the owner, the interest paid on the debt used to fund the ESOP can be tax-deductible for the company. This can provide additional tax benefits.
Don’t trade in your legacy to attain liquidity. Unlock the Benefits of Employee Ownership.
HOW DOES A LEVERAGED ESOP WORK?
Think of it as a tax advantaged, leveraged buyout of your own Practice.
Practice owners sell equity to an employee trust. Partial sales are common. Benefit: Owners maintain control of the process.
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Third-party and/or seller debt finances the transaction. Benefit: Employees do not pay out-of-pocket as the funding loan is repaid over time using the tax-advantaged cash flow of the ESOP-owned practice.
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Eligible employees receive significant share allocations over an extended, multi-year period - Benefit: Enhanced employee recruitment and retention.
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When employees depart, their vested stock is sold back to the company at a current valuation.
KEY ADVANTAGES | ESOP VS. PRIVATE EQUITY
Continuity: Rising physicians and staff are incentivized to stay with the practice and guide its growth. ESOPs help sustain legacies, enhance workplace cultures, and drive better patient outcomes.
Autonomy: An employee-owned practice is run by its board, not outside investors. The practice maintains freedom to make its own strategic and M&A decisions.
Continued independence, coupled with unique tax advantages, make ESOPs a meaningful alternative to private equity – one that puts healthcare providers and patients first. Click the link below for a pros and cons breakdown of ESOP vs PE.
Considering Private Equity? Learn why an ESOP is a beneficial alternative.
Our Organization
At MedESOP Advisors, we help practices evaluate strategic options with a focus on ESOP formation.
