Inside the recently signed $717 billion, Fiscal Year 2019 John McCain National Defense Authorization Act is a small provision that has nothing to do with national defense but a lot to do with a big opportunity for small businesses and lenders.
Some companies want a way to get stock to the broader base of their workforce (with some extra "oomph" for their senior people), that is deductible and coordinates with their existing shareholder strategies, but that isn't as complex as an ESOP. Yet others see the significant additional tax benefits of an ESOP strategy and are willing to handle the trade-offs to get it.
In this article, we're revisiting three court cases involving ESOP fiduciary indemnification that left some head-scratching over when and how an ESOP company can indemnify its ESOP trustees. This year being the fifth anniversary of the last decision, Harris v. GreatBanc Trust Company, and the landscape still a little murky, we thought it might be prudent to go over some of the lessons learned from those three decisions. But first a little background.
Employee stock ownership plans (ESOPs) are retirement plans. As such, ESOPs are required to follow all the basic rules for tax qualification and non-discrimination that other retirement plans such as 401(k)s must follow. Like a 401(k) plan, ESOPs also let participants roll their distributions over to another qualified plan.
Broadly speaking, employee stock ownership plans (ESOPs) are a great option for companies looking to accomplish one of two goals—succession planning and employee benefits planning. The great thing about an ESOP is that it can often accomplish both of those goals if it’s designed well. Here are some reasons companies choose ESOPs to create better futures for themselves.
As we’ve explained before, an employee stock ownership plan (ESOP) is a dynamic and option-rich succession planning tool that can strengthen companies.
What may be less known is the remarkable tax advantages an ESOP offers to a selling shareholder. Chief among these is the deferral of taxes. The owner of a C corporation can defer tax on the sale of stock as long as the ESOP buys at least 30% of the company and the seller re-invests the proceeds in U.S. operating company stocks or bonds within 12 months of the sale. That tax deferral becomes permanent for the seller’s estate if the estate holds those replacement investments at the time of the seller's death.
We have a dedicated purpose to maintain and continue to develop our position as thought leaders in the ESOP arena to meet the ever changing and evolving needs of our clients. This is not a static area in which we practice. It's very dynamic and subject to change. The only way to stay on top is to actively participate and contribute to the knowledge base at the ESOP industry conferences and add to the dialogue about what our colleagues and clients are doing across the country.
We just wrapped up our involvement in the California/Western States (CAWS) Chapter conference in San Diego and the ESOP Association’s annual conference in Las Vegas.
Employee stock ownership plans (ESOPs) can seem confusing, but they are actually very simple and attractive tools for attracting and retaining top talent, and providing flexibility for business owners.
ESOPs are very similar to profit-sharing plans, except that they must be primarily invested in company stock. ESOPs must follow the same participation and nondiscrimination provisions as a retirement profit sharing plan.
Figuring out how many shares to sell to the ESOP is a fundamental decision in planning for an employee stock ownership plan (ESOP). Owners are often surprised that this decision-making process helps them clarify their short- and long-term goals for both themselves and their companies. A number of factors help determine how many shares to sell and how many shares the ESOP can prudently buy.
ESOPs, like all investment vehicles, have certain tax considerations. We provide the guidance you need to understand these tax features and design your ESOP to best suit the needs of all parties involved. Here are some ways tax law can impact the various parties involved in an ESOP.