The Advantages of an ESOP
ESOPs provide business owners and employees with several significant advantages:
- An ESOP is a tax-exempt trust and could allow the business owner to bypass expensive capital gains taxes.
- Contributions of stock and cash are tax deductible.
- When ESOPs borrow money to fund stock sales and acquisitions, loan repayments and interest can be tax deductible.
Who Can Establish an ESOP?
Most corporations that have stock options can establish an ESOP. This includes S corporations and C corporations. However, LLCs cannot have an ESOP because LLCs cannot issue shares of stock.
If you are not sure whether your business qualifies for an ESOP, contact an experienced California estate planning attorney to discuss your options.
Establishing an ESOP
Small and large businesses alike can benefit from an ESOP. But establishing an ESOP is not simple. Your company will have to found and fund a special trust. This trust will own the company’s stock and reallocate shares to participating employees’ ESOP accounts.
If the company cannot provide the trust with enough funding to begin purchasing stocks for reallocation, you might have to take a loan.
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