ESOP – On the Positive Side

Good News Bad News

Existing Stockholders—As detailed above, benefits attainable by business owners through ESOP cannot be matched anywhere else within our tax system—a company’s income can be made to be tax-exempt; stock can be sold without a tax on realized gain; different forms of “Synthetic Equity” can be designed to enable a stock sale to be coupled with more »

ESOP – The “Down-Side”


Special Limitations and Requirements–ESOPs are subject to special limitations and requirements that may appear to present unsolvable problems, but in actuality, rarely do. The Right to Demand Distribution of Company Stock—First, ERISA provides that ESOP participants have the right to demand that ESOP distributions be in company stock.  Few closely-held companies would be pleased with more »

The Need for a Feasibility Study

ESOP Complications

As you have, no doubt, surmised, this thought process is complicated, and should usually be supported by the preparation of a “feasibility study.”  Stockholders contemplating a sale of stock to an ESOP should not be left to wonder whether they are buying a “pig in a poke.”  They should know what their alternatives are and more »

ESOPs as a Tool in Business Succession Planning

Business Tools

With all of the tax-saving avenues discussed, ESOPs are ideally suited to be used in the design of a business succession plan.  For instance, the ability to sell tax-free using 1042 coupled with monetizing, and the facility to combine ESOP with Subchapter S, thereby creating a tax-exempt entity, constitute luscious : “food for thought” to more »

ESOP Participant Distributions

ESOP Going Up

Focusing now on ESOP distributions to existing participants, the law extends considerable flexibility.  When a participant leaves because of retirement, death or disability, benefits must commence in the year following the triggering event and continue in equal increments for up to the following 4 years.  But, where a participant leaves because of other than retirement, more »

The ESOP Owned S Corporations

In order to really grasp this “be all, and end all” ESOP attribute you must open your mind, be willing to at least temporarily sublimate preconceived notions, and hone in on the bottom line.  This is because courses of action that initially may seem repugnant can quite often have a very “silver lining.” With this more »