| Employee ownership has become a
popular means of compensating and motivating
employees. Selling company stock to employees through
an employee stock ownership plan (ESOP) can also
offer unique opportunities for both succession and
estate and gift tax planning, thereby providing the closely held
business a vehicle for continued growth and success.
Furthermore, an employee ownership plan can be
utilized to create shareholder liquidity.
An ESOP invests
primarily in the stock of the employer company. ESOPs
are “qualified” (i.e., tax-qualified) in that in
return for meeting certain regulations designed to protect
the interests of plan participants, ESOP sponsors
(business owners)
receive various tax benefits. ESOPs are “defined
contribution plans” in which the employer makes yearly
contributions that accumulate to produce a benefit
that is not defined in advance.
Businesses can
increase employee loyalty with an ESOP that works for
your company. Our professional team offers
confidential valuations and fairness opinions for
business owners and their professional advisors
establishing an ESOP.
This powerful tool allows a business
owner to sell all or part of his/her company to
employees.
Some of the many benefits of
establishing an ESOP are:
-
Sharing ownership with employees can increase morale
and productivity, making the company more
competitive and profitable.
-
An
ESOP allows continuity in the management of the
business. Selling to an outside investor can involve
restructuring, absorption into an existing company,
or the installation of a new management team. After
an ESOP transaction, management typically remains
the same.
-
Selling to an ESOP allows tax-deferral of gains for a
business owner.
-
The company in which shares are being sold also receives
significant tax advantages in a leveraged ESOP transaction.
Both the principal and interest payments on loans used to finance
it are tax deductible to the company, which can
significantly reduce tax liability.
Employee ownership can be
accomplished in a variety of ways. Employees can
buy stock directly, be given it as a bonus, can
receive stock options, or obtain stock through a
profit sharing plan. About 11,000 companies now have
these plans, covering over 8.5 million employees.
An employee stock ownership plan (ESOP) is
similar to a profit-sharing plan. A company sets up a
trust fund, into which it contributes new shares of
its own stock or cash to buy existing shares.
Alternatively, the plan can borrow money to buy new or
existing shares, with the company making cash
contributions to the plan to enable it to repay the
loan. Regardless of how the plan acquires stock,
company contributions to the trust are tax-deductible,
within certain limits.
As ESOPs face intense scrutiny from
both the Internal Revenue Service (IRS) and the
Department of Labor (DOL), it is important to hire a
valuation firm and other professionals that understand
how to take advantage of this incredible tool while
maximizing the benefits to both shareholders and
employees.
Our ESOP services include the valuation of the
business prior to the establishment of the ESOP for
use by the client in working with the consultants and
consulting directly with the professional team.
We also prepare fairness opinions
for the company Board of Directors and the financial institutions
when the ESOP is established.
Lastly, we provide ongoing annual
updates for compliance with the IRS and DOL regulations
for the plan Trustee.
Contact us today to learn how we
can work together as a member of your ESOP team.
“Robert Wietzke has supplied a
very thorough and reasonably priced valuation of my
ESOP for several years.”
— Greg Hammond, Trustee,
Astro Company |
