Editor/founder Richard Gillespie has announced that Fast Cuts Edits has become 100 percent employee owned through the creation of an Employee Stock Ownership Plan (ESOP). ... Read More..
ESOPs were first authorized by federal legislation in 1974. Since that date, there have been more than 25 separate pieces of legislation that have further defined what an ESOP is and what an ESOP is permitted to do. Despite this fact, significant misconceptions about ESOPs persist. The following describes some of the more prevalent myths and misconceptions regarding ESOPs. Hopefully, the explanations provided below will help to dispel many of the misconceptions that currently exist regarding these matters. MISCONCEPTION #1 – The ESOP is primarily an employee benefit plan. The ESOP is not primarily an employee benefit plan. The reverse is true. The ESOP is primarily a tool of corporate finance that is used as an alternative to a sale or merger as a way of creating liquidity and investment diversification for owners of privatelyheld businesses. An ESOP uses the tax advantages afforded to qualified employee benefit plans in order to ... Read More..
A study released today by Alex Brill, former advisor to the Simpson-Bowles bipartisan deficit reduction commission and a fellow at the American Enterprise Institute, finds that private employee stock ownership plans (ESOPs) organized as S corporations increased employment over the last decade more quickly than the overall private sector. Among surveyed “S-ESOP” companies, the Brill study reported, jobs grew by 60 percent over the past decade, while jobs in the private economy as a whole remained relatively flat. “The unique strengths of employee ownership drove company gains and jobs in the past decade, while helping insulate S-ESOP businesses from the adverse effects of the recent recession,” Brill wrote in the new report. ESOPs are tax-exempt retirement plans that consist of company stock held on behalf of the company’s employees. They are company-funded retirement plans that do not require any contribution from workers. Congress first changed U.S. tax rules to allow ... Read More..
An increasing number of companies are turning to Employee Stock Ownership Trust financing as a means to simultaneously raise low cost capital and provide increased employee incentives and retirement benefits while reducing the cost of qualified plan benefits. The Employee Stock Ownership Plan is a qualified plan under Section 401(a) of the Internal Revenue Code. As such it is in the same family as pension plans, profit sharing plans and stock bonus plans. Nevertheless, The Employee Stock Ownership Plan (which together with the Employee Stock Ownership Plan, is referred to as the “Trust” or “ESOP”) is qualitatively different from other types of “qualified plans,” both in its concept and in its applications. Because of its inherent flexibility, because of its ability to facilitate and enhance corporate growth and because of its separate status under the recently enacted Pension Reform Act, the ESOP possesses an assortment of unique advantages not possessed ... Read More..
Advantages to C Corporations Many companies that have ESOPs fail to realize that their ESOP can be used to the finance acquisitions with pre-tax dollars. Normally, when debt is incurred to finance an acquisition, only the interest payments are deductible. Principal payments are not deductible. However, if the acquisition is financed through an ESOP, both the interest and the principal payments will be fully deductible, and this will be true whether the plan sponsor is structured as a regular C corporation or as an S corporation. In addition, if both the acquiring company and the target company are structured as regular C corporations, or both convert to C corporation status before consummating the merger, then the shareholders of the target corporation can qualify for tax-free rollover treatment upon the sale of their stock to the acquiring company’s ESOP. This additional tax savings gives the acquiring company a distinct advantage in ... Read More..
Click here to read the original article at bizjournals.com For business owners who want to cash out but still oversee the direction of the company and take care of their workers, an employee stock ownership plan might be the best bet. That was the message from panelists Tuesday morning at the monthly meeting of ACG Kentucky, the local affiliate of the Association for Corporate Growth. Many entrepreneurs get caught up in the tax benefits of ESOPs, but sellers have to consider their goals, said Alan Taylor, a partner in Louisville accounting and consulting firm BKD LLP. “If you just want to cash out and go to the beach, there would be other transactions that would be better,” he said. ESOPs serve as retirement plans for employees. An ESOP, controlled by a trustee, buys all the shares of a company. Then, company profits are placed into accounts for employees, with payouts based on ... Read More..
(Why Selling Your Stock to an ESOP is Better than Selling to a Third Party) If you are the owner of a successful decorative plumbing or hardware business, sooner or later you will face the prospect of having to exit the business, either because you wish to retire or because you wish to cash in the value of what you have built up and pursue other interests. ... Read More..
National Van Lines Inc. said it has changed the company’s structure, selling itself to an employee stock ownership plan entity. The third-generation, family-run business said it has been working on transitioning to an ESOP-owned S Corp. structure since July 2010 effort to “find an ownership and liquidity succession plan that did not disrupt the culture or the people.” The ESOP structure gives National Van Lines with tax savings, improved employee benefits and financial flexibility, the Broadview-based company said in a press release. Founded in 1901 by F.J. McKee, National Van Lines began in the Chicago area as a one horse and wagon moving service and expanded to a nationwide fleet of trucks. McKee’s granddaughter, Maureen Beal, is the company’s chief executive and one of its primary shareholders. Below is a ESOP training video they created for their employees: ESOP Training Presentation Video from National Van Lines, Inc. on Vimeo. ... Read More..
Distributions from an ESOP in the form of shares of company stock have many advantages. One of the compelling reasons for making distribution in the form of company stock, for example, is that distributions in the form of company stock enable participants to have a portion of their distribution taxed at long term capital gains tax rates rather than having the entire distribution taxed at ordinary income tax rates. This tax benefit derives from IRC Section 402(e)(4)(B), which provides that the employee will not be taxed at the time of distribution on the net unrealized appreciation attributable to employer securities. The result is that the employee pays tax on the cumulative cost basis of the employer securities at the time of distribution, and pays a long term capital gains tax on the appreciation at the time that the stock is sold back to the plan or to the company, as ... Read More..
NOVEMBER 1, 2004 The following article was originally published in Bloomberg Businessweek and written by Amey Stone Employee ownership can be a powerful tool Last November the 100 employees of Superior Plumbing & Heating, a mechanical contractor in Anchorage, Alaska, gathered on the snow-covered ground to celebrate their new status as full owners of the $20 million company. Cutting the ribbon and symbolically reopening the company was Jan Van Den Top, the 60-year-old president, who had sold his shares to the company’s employee stock ownership plan (ESOP). Van Den Top started the ESOP in 1995, contributing 42% of his shares as retirement perks for employees. In 2003 he learned of changes in the tax code that give generous breaks to S corporations that are fully employee-owned. He sold the rest of his shares to the ESOP, then switched Superior from a C corp to an S corp. The tax advantages ... Read More..
For additional information, contact: Angie Lamielle, Senior Marketing Associate 330-684-4002 firstname.lastname@example.org For Immediate Release: Monday, June 06, 2011 The Will-Burt Company is celebrating its 25th year as an Employee Owned Company. Will-Burt employees have been participating in the Employee Stock Ownership Program (ESOP) since its inception on December 31, 1985. Will-Burt will be holding a celebration for its employees and retirees on June 16, 2011 with a special recognition for over 60 employees who have participated in the ESOP for all 25 years. A short history of the Will-Burt Company since becoming an ESOP… 1990’s – The Night Scan line of emergency light towers begins to set the standard in vehicle-mounted emergency lighting. Contract manufacturing work for Caterpillar and Volvo begins to steadily increase in addition to contracts with Gerlach and Phoenix Mold & Die. Will-Burt receives the ISO 9001 designation for quality in 1994. A 140,000 square foot expansion ... Read More..
A “perfect storm” has hit the U.S. economy and its privately-held businesses. Consumer purchasing power has dried up, resulting in reduced revenues for almost all privately-held businesses. At the same time most banks have stopped or curtailed lending, and bank credit is no longer available to many businesses. During the past two quarters many businesses have downsized their operations and have implemented reductions-in-force, yet they are still faced with negative cash flows. Fortunately, there is a perfect solution to the negative cash flow problem that many businesses will experience for the rest of this year and most of next year. That solution utilizes a well-known tool that has been part of the tax code for over 35 years. It is a tool that is relatively inexpensive to implement and does not require the use of outside lenders or expensive factoring companies. The solution is to implement a Salary Reduction Employee ... Read More..
Here is a video posted by one of The Menke Group’s Clients: WinSystems, an embedded PC designer and manufacturer, provides a high level of quality and customer service through an Employee Stock Ownership Plan (ESOP). This leads to employees holding a direct stake in maintaining a high level of customer service. Here is the full press-release: WinSystems Adopts Employee Stock Ownership Plan September 19, 2007, Embedded Systems Conference, Boston, MA Jerry Winfield, President of WinSystems, today announced that the company has instituted an Employee Stock Ownership Plan (ESOP) and now joins a growing list of successful companies whose employees are stockholders. This corporate structure offers stability and longevity for the WinSystems Corporation insuring long-term availability of products for our customers. This is very important for industrial OEMs using embedded PC technology for their ongoing and future applications. “Acquisitions happen during a market consolidation or when an owner seeks an exit ... Read More..
The exit strategies available to owners of electrical wholesaling firms are somewhat limited. The available strategies include selling the business to a competitor, selling the business to the management employees, or selling the business to all of its employees under the provisions of an Employee Stock Ownership Plan (“ESOP”). ... Read More..
USES OF AN ESOP A Readily Available Market for Controlling Shareholders Frequently, controlling shareholders desire to sell a part of their shares in order to diversity their holdings, or to provide liquidity for investment or estate planning purposes. Usually, however, there is no market for the sale of a minority interest in a closely-held company. The adoption of an ESOP solves this problem by providing a readily available market for the purchase of shares from controlling shareholders. Moreover, the ESOP enables a shareholder to sell tax-free, provided that the ESOP acquires at least 30% of the outstanding shares. A great deal of flexibility is available in structuring sales to the ESOP. If a shareholder desires immediate liquidity, the plan may obtain a bank loan and purchase the shares for cash. If a shareholder does not need immediate liquidity, he may defer the tax on the sale by selling his shares ... Read More..
USING ESOPS TO IMPROVE EMPLOYEE PRODUCTIVITY You’ve read about them—companies that seem to have found the key to success in an unstable business environment: “Sales Jump 312% as Employees Learn Rules of the Game” at Springfield Remanufacturing Corporation in Missouri. Management Accounting. Inc. magazine awards its Entrepreneur of the Year award to all 240 owner-employees of the Connecticut firm Reflexite, Inc. Out of 2,700 private companies evaluated, 4 of the 5 finalists had substantial employee ownership. Inc. ... Read More..
S. 1612 – The ESOP Promotion and Improvement Act of 2009: On August 6, 2009, Senator Blanche L. Lincoln (D-AR) introduced S. 1612, the ESOP Promotion and Improvement Act of 2009. The legislation has four sections, including an entirely new proposal to remove a 35 year bias against ESOP companies by the Small Business Administration. One, S. 1612 would repeal the punitive 10% penalty tax on S corporations distributions from current earnings, also referred to as dividends, placed on the distributions from current earnings that are passed through to ESOP participants in cash. Two, S.1612 would clarifY that dividends paid by C corporations on ESOP stock are not a preference item in calculating the corporate alternative minimum tax. Three, S. 1612 improves the 1042 ESOP tax deferred rollover provisions by (a.) permitting sellers to the ESOP of an S corporation to utilize the ESOP tax benefit referred to as the ... Read More..
Fall 2010 Written by Loren Rogers In a project funded by the Employee Ownership Foundation, the NCEO did an extensive analysis of ESOP companies using data from the US Department of Labor. Unlike prior research, the study carefully compiled data from multiple plans within a single company and used multiple years of data for each plan. It concluded that ESOP companies are more likely to offer a second defined contribution (DC) plan than non-ESOP companies are to offer any DC plan at all. ESOP companies also contribute substantially more to their ESOPs than companies with non-ESOP DC plans contribute to their DC plans. The average ESOP participant has 20% more DC assets than the average participant in a non-ESOP DC plan, and those assets are much more likely to come from the company. Considering only DC assets originally contributed by the company, ESOP participants have approximately 2.2 times as much ... Read More..
August 11, 2010 The ESOP Association and the Employee Ownership Foundation released today the results of a survey conducted among the Association’s 1,400 corporate members in the first quarter of 2010 which confirms positive benchmarks for ESOP (employee stock ownership plan) companies. The company survey is conducted every five years and was last completed in 2005. Prior to 2005, the survey was completed in 2000. The eye-opening statistics of the 2010 survey are the increase in age of the ESOP and account balances. In 2010, the average age of the ESOP was reported to be 15 years as opposed to prior years where the ESOPs reporting where much younger. In addition, the average account balance has risen dramatically to $195,222.65; a much higher figure which correlates with the age of ESOPs participating in this year’s survey. The eye-opening statistics of the 2010 survey are the increase in age of the ... Read More..
Ross Group Inc of Dayton, Ohio announced that the company has formed an Employee Stock Ownership Plan (ESOP) and has joined the growing list of companies whose employees are stockholders. “When the transaction is completed,” said Mr. Mark Ross, President and CEO, “the employees of Ross Group Inc will own just under 25 percent of the Company.” Mr. Ross said, “We had an immediate need for one of our shareholders to exit, but beyond that, the ownership team wanted to find a long term solution that would provide an exit strategy alternative for the remaining owners as we neared retirement age. It seemed only right to us that the company should be sold to the employees. Without the loyalty, dedication, and hard work of this fine group of individuals, we certainly would not have grown as much as we have.” “The Plan has two objectives,” Mr. Ross indicated. “First, to ... Read More..
Wednesday, June 30, 2010 Clif Bar & Company announced the selling of family owned common stock to its employees through an employee stock ownership plan (ESOP). Employees through the ESOP own 20% of the company, while husband and wife owners Gary Erickson and Kit Crawford retain the remaining 80%. No change in management structure will take place, with Erickson and Crawford remaining majority owners and co-CEOs of the company. “All along we wanted to create a company where we would want to work,” said Crawford. “Employee ownership is one more way we could run a different kind of business: one that inspires a team of people to make the kind of delicious, nutritious food we’d like to eat, and that strives for a healthier, more sustainable world.” “By retaining private, employee ownership we will continue to have the freedom and flexibility to build a sustainable business with long-term focus for ... Read More..
FOR IMMEDIATE RELEASE Technomics, Inc. Benefits Employees with Stock Ownership Plan Arlington, VA – January 26, 2010 Rick Collins, President and CEO of Technomics, proudly informed employees on January 26, 2010 that the Company formed an Employee Stock Ownership Plan (ESOP) and, in doing so, has joined the growing list of companies whose employees are stakeholders. “The Plan has several objectives,” Mr. Collins indicated. “First, to provide ownership of the company to those that build the company; second, to provide a significant retirement benefit and a reason to want to make the company more successful; third, to provide a tool to motivate, retain and attract employees; and finally, to create a market for stock held by original owners without a sale to outside interests. The plan should result in increased employee incentives and provide them with long-term retirement benefits. We also hope the ESOP will encourage employees to create opportunities ... Read More..
Written by Phillip Swagel and Robert Carroll Executive Summary A study of a cross-section of Subchapter S firms with an Employee Stock Ownership Plan shows that S-ESOP companies performed better in 2008 compared to non-S-ESOP firms along a number of dimensions, including job creation, revenue growth, and providing for workers’ retirement security. The S-ESOPs paid their workers higher wages on average than other firms in the same industries, contributed more to their workers’ retirement security, and—crucially in a year of recession—hired workers when the overall U.S. economy was pitched downward and non-S-ESOP employers were cutting jobs. S-ESOPs help prepare ESOP participants – the workers – for a more economically secure retirement. Employee-owners accumulate shares of company stock as part of their compensation in addition to their wages and other benefits such as health insurance. This is a meaningful contrast between S-ESOPs and other firms: nearly 60 percent of working Americans do not have any ... Read More..
The ESOP – Employee Stock Ownership Plan – is, slowly, on the rise. These worker-owned businesses are more productive and could benefit the American economy. Shoppers eye goods at the bakery of King Arthur Flour Co. in Norwich, Vt. The employee-owned firm was able to expand from its niche to deliver a broad product line. Norwich, Vt. A decade ago, John Schock of Pasadena, Md., reached his mid-50s and a crossroads. He could fund his retirement by selling off his financial-services firm to another company. But he wanted to assure the future of FMS, the firm he’d founded in 1974. “If there isn’t a solid succession plan for key management and staff, then a company can fail after the founder leaves,” Mr. Schock says. So he took the unconventional route: He sold FMS to his workers, all 35 of them, by creating a tax-advantaged Employee Stock Ownership Plan. They got ... Read More..
Small companies are rushing to reward workers with employee stock ownership plans as low valuations make awarding shares more attractive By Karen E. Klein Bob Moore gathered three employee shifts together last month for pizza parties to celebrate his 81st birthday. But Moore, the founder and president of Bob’s Red Mill Natural Foods in Portland, Ore., also had a surprise announcement: He was giving his 200 employees the company he founded in 1978. “I thought some of them were going to kiss me,” Moore recalls. “It went over very, very, very well.” Moore and his partners researched their retirement options for more than a decade before settling last year on an Employee Stock Ownership Plan (ESOP). An ESOP is a tax-advantaged, qualified employee retirement plan similar to a stock bonus plan except that it can borrow money. ESOPs are typically created to buy out all or part of an owner’s interest in an ... Read More..
Dear Reader: As president of Menke & Associates, Inc., I believe there is significant untapped growth potential in most privately held companies. Whether you want to sell some or all of your stock in the company in the next five years or whether you plan to remain active for the long term, Menke & Associates, Inc. proposes to work with you to develop a program which should help you achieve your growth potential and multiply the total value of your investment in the company. Our experience with more than 2,000 companies nationwide since 1974 proves to us that only on-site, hands-on owners consistently tap the energy, unlock the ingenuity, and muster the commitment necessary to make a business successful. After all, who cares whether the business succeeds or fails? Only owners really care. Over the past 35 years more than 40,000 U.S. company owners have taken advantage of this opportunity ... Read More..
The First ESOP (1956) San Francisco lawyer and economist Louis O. Kelso created the first employee stock ownership plan (ESOP) in 1956 as a way to transition ownership of Peninsula Newspapers, Inc. from its two founders (both then in their 80s) to their chosen successors, the managers and employees. Kelso had long believed that the company’s own employees should be the logical buyers and the ultimate owners; they were the ones who made the business successful in the first place, and the ones who knew the ins and outs of the business better than anyone else in the industry. The two founders had long wanted their employees to inherit ownership. They had promised that when the time came for them to retire, the employees would have the first right of refusal. They had seen too many of their competitors gobbled up by large newspaper chains, and they had seen the ... Read More..
Capitalism collapsed in the fall of 2008. It’s collapse was also the direct result of a flaw in the system. Capitalism promised universal opportunity and a rising tide for everyone. To achieve this result, capitalism privatized and/or deregulated every possible industry. It glorified greed, extravagant executive compensation, and financial manipulation. Just as in the case of communism, it failed to place any real purchasing power into the hands of the workers. Over the past 20 years, the economic purchasing power of U.S. workers has decreased by an alarming percentage, despite the overall growth of the U.S. economy. U.S. capitalism delayed the day of reckoning by devising a host of innovative but lethal financial tools such as subprime mortages, negative amortization loans, and credit cards and automibile loans that were issued with no questions asked. Now that the bubble has burst, the Goverment’s only solution seems to be a massive “stimulus” ... Read More..
Information in this booklet has been developed for those owners of privately-held businesses who are interested in liquefying some portion of the equity which has accumulated in their companies. We have assumed that many of our readers may be interested in accomplishing this objective without sacrificing the identity of their companies, jeopardizing the jobs of valued employees or relinquishing control of the companies they own. An ESOP installation may provide the optimal solution for business owners hoping to achieve all of these goals. An ESOP (Employee Stock Ownership Plan) is a powerful and versatile business and financial tool which can help a business owner to accomplish the following: The ESOP trust establishes the fair market value of the company’s privately-held stock and it also functions as the marketplace for that stock. ESOPs assure flexibility by allowing an owner to liquefy whatever portion of his ownership he chooses. The owner does not ... Read More..
Economic Stimulation and Solutions for Creating New American Jobs and for Protecting Existing American Jobs By John D. Menke, Esq. Historical Background of the American Dream Since the very founding of the original thirteen colonies, America has always been known as the land of economic opportunity and as the most capitalistic country on the face of the earth. During the 1700s and the 1800s, immigrants by the millions came to our shores in search of the opportunity to participate in the American dream the opportunity to find a job and then later to become the owner of a farm, a ranch or a small business. During most of the history of this country, Americans by the millions were able to realize their dreams. Although initially most had to work long hours in low paying jobs, many were eventually able to become capital owners. Over the last thirty years, however, this ... Read More..