Understanding ESOPs

Understanding ESOPs

by Corey Rosen, Scott Rodrick

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Overview

Although roughly 7,000 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.

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.

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. Originally published in 2008, it has been updated as of 2016.

Product Details

BN ID: 2940012664754
Publisher: National Center for Employee Ownership
Publication date: 06/11/2010
Sold by: Barnes & Noble
Format: NOOK Book
Sales rank: 1,150,349
File size: 118 KB

About the Author

Corey Rosen is the NCEO's senior staff member and former executive director. He cofounded the NCEO in 1981 after working for five years as a professional staff member in the U.S. Senate, where he helped draft legislation on employee ownership plans. Before that, he taught political science at Ripon College. He is the author or coauthor of many books and over 100 articles on employee ownership, and coauthor (with John Case and Martin Staubus) of Equity: Why Employee Ownership Is Good for Business (Harvard Business School Press, 2005). He was the subject of an extensive interview in Inc. magazine in August 2000; has appeared frequently on CNN, PBS, NPR, and other network programs; and is regularly quoted in the Wall Street Journal, the New York Times, and other leading publications. He has a Ph.D. in political science from Cornell University and serves on the advisory board of the Certified Equity Professional Institute.

Scott Rodrick is the NCEO's director of publishing and information technology. He designed and created the NCEO's present line of publications and is the author or coauthor of several books himself, such as An Introduction to ESOPs. Since 1994, he has created and maintained the NCEO's presence on the Internet. He is an attorney and served at the U.S. Department of Labor as an attorney-advisor before coming to the NCEO.

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