By Robert A. Frisch
What if there have been a manner an proprietor of a personal corporation could:* promote inventory of the corporate, pay no tax at the proceeds, and nonetheless hold control?* raise the company's operating capital and funds circulate without funds expenditure?* supply staff with fairness at no funds outlay on anyone's part?* Make lifestyles assurance rates tax deductible?* raise productiveness, profitability, and corporate worth with out funds outlay?* enable the company to function in a unconditionally tax-free environment?An ESOP-- worker inventory possession Plan-- does all that and it does it with the sanction and encouragement of the us Congress.ESOP: the final word device in Succession making plans, moment version is a accomplished but easy-to-understand advisor emphasizing the company monetary merits that an worker inventory possession plan can provide as a enterprise financing device. Written by way of famous professional Robert Frisch and up to date to incorporate the newest advancements, this publication explains in transparent language ESOPs paintings and the way proprietors of personal businesses can use them as flexible monetary instruments to accomplish their succession making plans targets.
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Extra info for ESOP: The Ultimate Instrument in Succession Planning, 2nd Edition
Alternatively, the corporation can make tax deductible contributions of stock to an ESOP, thereby saving taxes with no disbursement of cash. Tax savings increase the size, value, and earning capacity of the company. The effect is to create new capital that employees can own without reducing the wealth of the business owners. 2 SLOW EARLY DAYS OF ESOPs ESOPs got off to a slow start because relatively few employers were willing to put their companies on the line with a program that seemed too good to be true.
This, in turn, is related to the then current status of the stock market. The stock would quite possibly be offered through a regional exchange and there would be a thin market for the security. A sale of a significant portion of the owner’s stock at the initial offering would be suspect. If the company is so good, why is the owner selling? A thin market refers to the fact that the stock is held by relatively few stockholders and would not absorb large block sales of the securities. The price that the entrepreneur could hope to receive for his or her holdings might be well below the original offering price or even less than liquidation value.
Selling the company internally. Problems: (a) The managers seldom have adequate personal resources to buy the company. (b) If the owner bonuses the cash to the manager for the buyout, the owner is using his own money to buy himself out. (c) The owner will be taxed on the proceeds. (d) The manager will be subject to a phantom tax on the bonus. (e) If the company becomes leveraged, the owner will usually be a guarantor and must remain involved to assure the debt will be retired. 24 ch01-06jwFRISCH_37911 8/9/01 6:58 AM Page 25 PLANNING FOR SUCCESSION Is there any wonder many company owners simply throw up their hands and do nothing?