If you are a business owner, you may be overlooking one of the most powerful and time-tested succession and ownership transition tools available: the Employee Stock Ownership Plan (ESOP).

If you are a business owner, you may be overlooking one of the most powerful and time-tested succession and ownership transition toolsavailable: the Employee Stock Ownership Plan (ESOP).

ESOPs have long been attractive for their unique tax advantages and ability to reward employees, while preserving a company's legacy. For example, in certain structures, such as a 100% ESOP-owned S corporation, companies can operate largely free of federal income tax, creating a powerful cash-flow advantage. Certain owners can also defer, or even eliminate, capital gains tax on the sale of their shares.

Despite these advantages, ESOP formation has slowed in recent years, largely due to legal uncertainty and post-closing litigation risk, particularly around valuation practices. That may be about to change, as bipartisan efforts in Washington seek to lower barriers and provide greater certainty, paving the way for a more ESOP-friendly environment:

• Valuation Clarity and Reduced Litigation Risk: Key House and Senate committees have recently advanced bipartisan legislation that would create a statutory safe harbor for ESOP fiduciaries when determining whether a sale of private company stock to an ESOP is for "adequate consideration."
• Greater Policy Influence for ESOPs: A separate bipartisan measure would...

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