Diversification For The Business Owner While Maintaining Control

Category: Finance, Financial Planning.

This article is focused on helping business owners and their advisors understand Employee Stock Ownership Plans( ESOPs) and how they can assist in developing effective Exit Strategies from a business.

Many' ESOP oriented' business owners realize that their businesses are inherently difficult to sell and are interested in diversification of their personal wealth away from their illiquid businesses. Even with today's vibrant Mergers and Acquisitions marketplace, many business owners continue to ask about ESOPs as' internal buyers' of their Company stock. Others simply want to know about the tax savings that the Internal Revenue Code allows when working with these plans. ESOP benefits include the following: Tax- deferral of Capital Gains: Section 1042 of the Internal Revenue Code allows for the avoidance of capital gains on the sale of stock to an ESOP. And some business owners are interested in rewarding management and key employees. Certain rules are required to be followed with this' rollover'strategy, but it is possible for some corporations to sell stock and avoid capital gains taxation in the year that the sale is realized. Non- cash Tax Deductions for the Company: As a defined contribution plan, the ESOP allows a Company to make non- cash. contributions to an ESOP that reduces its current level of taxable income.

Under current Estate Tax laws, the gain may be permanently avoided if the assets are'stepped up' . Diversification for the Business Owner While Maintaining Control