Ten Steps to a Successful ESOP

Employee Stock Ownership Plans (“ESOPs”) are federally qualified employee benefit programs governed by U.S. law. Since our president and founder, John Menke, wrote some of the original ESOP legislation in 1974, more than 25 additional laws have been passed to promote and broaden the benefits of ESOPs. In general, ESOPs offer owners of companies tax efficient means to sell all or part of their shares to their employees, on a timeline of their choosing. ESOPs have the added benefit of energizing employees to increase sales and profits as these employees become “owners.” Shares sold to an ESOP are held in a trust: the employees receive beneficial ownership, while and in most instances the selling shareholder retains control. The formation of an ESOP does not preclude the company from going public or being sold at a later date. Below are ten steps to understanding, designing and implementing an ESOP that is ... Read More..

ESOP: A New Tax Savings Tool for Owners of S Corporations

“A new dawn greets ESOP companies!” “The Holy Grail of business opportunities beckons: ESOP companies can now operate tax free!” Not since 1984, when the §1042 tax-free rollover was enacted, has the ESOP community bubbled with such enthusiasm. Under the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, (“EGTRRA”), the ESOP’s share of S corporation earnings will not be subject to federal corporate taxation or to taxation as “unrelated business income tax,” unless the ESOP runs afoul of certain “anti-abuse” provisions. Thus, in the case of an S corporation that is 100% owned by its ESOP, the company’s earnings will be entirely tax exempt. Even the least ebullient of practitioners note that fiduciaries of existing ESOPs now confront a new obligation: to assess whether electing S status would benefit the company and the trust beneficiaries. A Bit of History Until the Small Business Job Protection Act ... Read More..