What is an Employee Stock Ownership Plan (ESOP)?

An ESOP is a qualified defined contribution plan that invests primarily in employer securities.  An ESOP can be an important part of a corporation’s employee benefit/incentive program.  An ESOP permits employees of a corporation to share in the growth and dividend income of the corporation.  But an ESOP can also provide important benefits for the business owner including: (1) creating a market for the stock of a privately-held corporation; (2) establishing a value for the stock; (3) permitting the owner to convert part or all of his or her stock into cash by selling it to the ESOP; (4) permitting the owner to defer tax on the gain realized upon sale of stock to the ESOP so long as the sales proceeds are reinvested in replacement securities; (5) permitting the  owner to borrow money thru the ESOP to buy the owner’s stock; (6) permitting the corporation to deduct (in the form of deductible retirement plan contributions) 100% of the amount used to pay principal and interest on the ESOP loan; and (7) if the corporation is an “S” corporation, exempting all of the corporation’s income allocable to the ESOP from federal and state income taxation.

An ESOP can be a very useful tool.  But setting up and operating an ESOP can be somewhat complex.  If you would like to know more about the pros and cons of setting up an ESOP let me know.  Jsenney@pselaw.com or 937-223-1130.

If you like what you read, forward this to a friend.  Tell them to check it out by clicking on

the SenneySays logo.  

 

AND ONE MORE THING.  H.B. 153 signed into law by Ohio Governor John Kasich on June 30, 2011 established a non-refundable income tax credit for small businesses which employ at least 50 full-time employees in Ohio, and have assets less than $50 million or annual sales less than $10 million.   Want to know more about the new Ohio income tax credits?   Give me a call or email at Jsenney@pselaw.com or 937-223-1130.