Employee Ownership Plans

What are they?

Employee Stock Ownership Plan (ESOP) is a viable way for business owners to partially or fully exit their business, on a tax-advantaged basis, either as an S-corporation or C-corporation.

Benefits for the employer An ESOP is an excellent way to reward Exit strategies employees with benefits at no ESOPs provide a unique way for business cost to them while inspiring them to Baby boomers are retiring rapidly these owners to diversify their risk on a tax- participate in the growth and success of days and over the next four decades, advantaged basis. They allow business the company. Because ESOPs have approximately 30 to 40 percent of owners to cash out some or all of their equity many tax advantages, employees do not businesses in the U.S., will be changing in the company while keeping operational pay tax on the stock allocation to their ownership as a result. ESOPs offer control. Closely held business owners can accounts until distributions are taken, important benefits to help company use an ESOP as an excellent estate-planning usually after retirement. owners make this transition. These tool that generates liquidity for their shares benefits make ESOPs an excellent and creates succession options for those Tax advantages alternative to other exit strategies. They involved in the business. can facilitate family business The tax code gives sellers the ability to succession planning and estate Designed to invest mainly in the stock of the defer capital gains tax while giving the planning through the transfer of different employer, an ESOP can be a stock bonus company tax deductions. ESOPs are tax types of assets to family members with plan or a combination stock bonus plan and exempt and pay no tax on their pro-rata different levels of involvement. And money purchase plan The Internal share of company earnings. In addition, because ESOPs can be structured as a Revenue Code (IRC) gives tax incentives to only 30 percent of the business needs to series of transactions, they can be employers who sell their company stock to be sold to the ESOP to obtain these tax either an intermediate or long-term exit the ESOP. Companies can benefit from tax benefits, while the owner can continue to strategy. savings in many ways using this unique participate in their business. corporate financing strategy. Why RBC Corporate and Executive Tax benefits of an ESOP produce Services? Benefits for the employee financial rewards not just for the company but also for the owner and the employees. Our experienced professionals can A unique aspect of ESOPs is that benefits are As the employer sponsoring an ESOP for work with your RBC Wealth paid to participating employees in the form of your employees, your contributions to the Management financial advisor to help company stock. A trust fiduciary sets up plan, whether in the form of company facilitate an Employee Stock Ownership individual accounts within the trust for each stock or cash that is used to purchase Plan for your privately held S or C participating employee. The employer then company stock, are generally tax Corporation. The Corporate and contributes either cash or shares of company deductible on your federal income return Executive team and The ESOP Plan stock to the trust on behalf of participating for the year in which you make those Advisors can help advise you in a employees. If employers make cash contributions. To be eligible, for this strategy to exit your business. contributions, the trust uses that money to employer tax benefit, your plan must purchase shares of company stock either remain a “qualified” plan. from shareholders or from the company itself.

The material contained herein is for informational purposes only and does not constitute tax advice. Investors should consult with their own tax advisor or attorney with regard to their personal tax situation.

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