0816_TOEFL-Test-and-Score-Manual-1997

68 ● 201 Great Ideas for Your Small Business
GREAT
IDEA
Establish an Employee Stock
Ownership Plan (ESOP)
When a small business owner wants to cash out or pull
some equity out of his or her business for retirement,
one of the best options for employers and employees is to set up an employee
stock ownership plan, or ESOP.
ESOPs allow business owners to sell company shares to employees at
a fair price. ESOPs also provide significant tax benefits for owners while
providing retirement benefits for workers. Workers who own shares usually
feel more loyal and driven to perform, so productivity increases and, as a
result, their stock increases in value.
“Ninety-one percent of ESOP companies declared that creating
employee ownership through an ESOP was a good decision that has helped
the company,” said J. Michael Keeling, president of the ESOP Association.
“That’s saying a great deal in these challenging times.”
An ESOP can also help finance the expansion of the business, so everyone
benefits. ESOPs work especially well for small, stable companies with
fewer than 100 loyal, long-time employees. The employees get all the economic
benefits of being a shareholder without the liabilities.
America has about 11,500 ESOPs, covering 10 million employees,
according to the ESOP Association, based in Washington, DC (www
.esopassociation.org). Total assets of U.S. ESOPs at the end of 2007 was
estimated to be $901 billion. About 20 percent of ESOP companies are in
the manufacturing sector. Most ESOP companies also have retirement and
savings plans in addition to employee stock ownership.
One huge perk for business owners is the ability to deduct both
the principal and interest on any loan used to finance an ESOP. If you
borrow money to create the ESOP, you can use the entire distribution
tax free.
If you are thinking of creating an ESOP, you’ll need an experienced
team comprised of an attorney, an accountant, and a bank or brokerage
house to provide the cash to buy the shares.
You’ll also need a skilled administrator to keep track of the paperwork
and distribute shares when employees quit or retire. Most employees are
vested in the plan after five to seven years.