If you use an employee stock ownership plan (ESOP) as part of your succession and estate plan, you and your family business may be able to take advantage of three major tax benefits. These benefits also make the leveraged ESOP a useful financing tool; entrepreneur Sam Zell took advantage of it in his recent $8.2 billion bid for the Tribune Company.
What it is: An ESOP is an employee benefit plan somewhat similar to a profit sharing plan. The employee participants will ultimately benefit if the value of the corporation's shares appreciate. Upon retirement, an ESOP participant generally will be entitled to receive an amount of cash equal to the then current value of his or her share of the ESOP-owned stock.
How it works for you and your company: The three tax advantages are:
Stay in control: In a traditional sale, the new shareholders take control. While the employees of the company as ESOP participants will indirectly own the shares that are sold, in many cases, the selling shareholders may be able to maintain day-to-day control of the company. For a family-owned or other privately held company that is planning for a sale or other liquidity event, the ESOP provides another potential market.
For more information on these and related issues, please contact the Trusts & Estates Group at Herrick, Feinstein LLP or Fred Green (email@example.com).
Copyright © 2007 Herrick, Feinstein LLP. Trusts & Estates Alert is published by Herrick, Feinstein LLP for information purposes only. Nothing contained herein is intended to serve as legal advice or counsel or as an opinion of the firm.