Understanding ESOPs

Understanding ESOPs

Although over 10,000 U.S. companies have an employee stock ownership plan (ESOP), many businesspeople are not well acquainted with them. ESOPs are often confused with stock option plans, which are something else altogether. They are not stock purchase plans; employees almost never buy stock through an ESOP. They do not require that employees run the company or even elect the board, unless companies want to structure themselves that way. Most people, in fact, would be well served by forgetting what they have heard or thought about ESOPs before starting to learn more about them. This book will teach you how ESOPs work in both C and S corporations, what their uses are, what the valuation and financing issues are, what the steps to set them up are, and much more. It has been updated as of 2016.

The most common use for an ESOP is to buy the shares of a departing owner of a closely held company. Owners in C corporations can defer tax on the gain they have made from the sale to an ESOP if the ESOP holds 30% or more of the company's stock and certain other requirements are met. Moreover, the purchase can be made in pretax corporate dollars. In an S corporation, the tax deferral is absent, but a different tax advantage is present: no federal (and usually no state) income tax is owed on profits attributable to the ESOP-held shares.

ESOPs are also used to divest or acquire subsidiaries, buy back shares from the market (including public companies seeking a takeover defense), match 401(k) contributions, restructure existing benefit plans by replacing current benefit contributions with a leveraged ESOP, or simply provide an employee ownership plan for the company.

Country	USA
Binding	Kindle Edition
EISBN	9781932924473
Format	Kindle eBook
IsAdultProduct
Label	The National Center for Employee Ownership
Manufacturer	The National Center for Employee Ownership
NumberOfPages	158
PublicationDate	2010-06-11
Publisher	The National Center for Employee Ownership
ReleaseDate	2010-06-11
Studio	The National Center for Employee Ownership

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