ESOP - Employee Stock Ownership Plans  

ESOPs are a powerful tool in today's world of corporate finance. Like any other sophisticated tool, ESOPs must be planned and structured properly. An ESOP is the most tax beneficial method of transferring company ownership.

Tax Benefits
There are huge benefits to everyone involved in the transaction. From the current owner (seller), to the buyers (employees) and finally, the corporation itself - all have tax benefits that can't be found anywhere else.

1. Seller - with proper planning, the seller can make this a tax free sale.
2. Buyer - the buyer literally gets something for nothing. Not only does the employee not have to report income for receiving his/her interest in the company - he/she then can sell the stock under the same conditions as the original seller and still pay no tax!
3. Corporation - an ESOP is the only structure that enables the company to write off note principal against ordinary taxable income. If it is an 'S' Corporation, you can create a tax free entity.

Purpose
An ESOP can be used for one of the following objectives:

1. Company owner sells out to employees
2. Company acquires significant capital assets
3. Company acquires another company
4. Company restructures its current debt

Prospects
An ESOP candidate should have some or all of the following characteristics:

1. Adequate FMV- $3MM or larger
2. History of profits
3. Stable industry
4. Adequate payroll base
5. Successor management

If you have a client that might be a candidate for an ESOP, please complete the ESOP Pre-Qualification Form and the General Business Information and Due Diligence Questionnaire and e-mail or fax to us for a free mini valuation.

Employee Stock Ownership Plans

The Ultimate Exit Strategy and Financial Tool
Employee Stock Ownership Plans (ESOPs) are a powerful tool in today's world of corporate finance. Like any other sophisticated financial tool, however, ESOPs must be planned and structured properly.

ESOPs can provide unparalleled financial benefits when applied properly to real-life needs and goals within today's corporate environment. Whether for reducing or eliminating taxes, growing through acquisition, building capital, planning for management succession and ownership transfer or reducing the cost burden of employee benefit packages, ESOPs deserve careful consideration by companies as a tool for future success and staying power.

What is an ESOP?
An ESOP is a Qualified Plan under the Employees Retirement Income Security Act of 1974 (ERISA). See Sections 401(a), 4975(e)(7) and 501(a) of the Internal Revenue Code of 1986, as amended, and Section 407(d)(6) of ERISA, 1974. What you can do with this powerful tool of personal and corporate finance is nothing short of amazing.

An ESOP is a defined contribution, tax-qualified plan that has two distinguishing features: (1) An ESOP is allowed to invest exclusively in the stock of its sponsoring company; and (2) an ESOP can borrow money. A sponsoring corporation can contribute cash or stock to an ESOP on a tax-deductible basis, increasing cash flow. Owners of privately-held corporations can sell all or part of their stock to an ESOP for full Fair Market Value, often completely avoiding capital gains tax on the transaction.

Why Consider an ESOP? Four Powerful Uses
DID YOU KNOW you can sell your company stock to an ESOP and pay NO TAX on the transaction? That's right! An ESOP provides the only way under the U.S. Tax Code to sell highly appreciated company stock and totally avoid capital gains tax on the transaction.

This is the ultimate exit strategy!!

DID YOU KNOW you can actually purchase capital goods with pre-tax dollars, if structured through an ESOP? Think of the competitive advantage!

DID YOU KNOW you can purchase another company with pre-tax dollars, if structured through an ESOP? That means you'll be paying only 66-cent-dollars for the purchase of a company. Compare that to the normal after-tax cost of approximately $1.52!

DID YOU KNOW you can refinance existing debt through an ESOP and fully tax-deduct Principal and interest on the repayment of the debt? Sound too good to be true? But it is true! That's the power of an ESOP.

Benefits for the Shareholder

1. Tax-deferred (deferred permanently, if structured properly) transaction on the sale of stock to an ESOP (for owners of 'C' Corporations).
2. Seller obtains top dollar, controlling interest value on the sale of stock to an ESOP.
3. Shareholder can sell stock and remain in control.
4. Seller obtains additional annual income due to investing pre-tax dollars.
5. Seller diversifies investments (all of the eggs are no longer in the company basket).
6. Seller obtains liquidity and flexibility for estate planning.
7. Seller has control over the sale of his/her stock and the orderly transfer of management responsibilities.

Go To Page 2