ESOP Design

ESOPs established by smaller companies usually cover all employees who have satisfied the minimum age and service requirements.

ESOP Guidelines

ESOP Guidelines ESOP Guidelines were created to streamline the design of employee stock ownership plans (ESOPs). ESOPs provide a company’s workforce with an ownership interest in the company. ESOP Guidelines for setting up ESOPs ESOP guidelines start with determining the company’s value, since the ESOP cannot pay more than fair market value for the stock.

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Do all employees have to participate in the ESOP?

No. However, in order to satisfy IRS nondiscrimination guidelines, the ESOP must cover a substantial percentage of non-highly compensated employees who have attained age 21 and completed a year of service. For this reason, ESOPs established by smaller companies usually cover all employees who have satisfied these minimum age and service requirements.

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How do I set up an ESOP?

The first step in the process is determining the company’s value, since the ESOP cannot pay more than fair market value for the stock it purchases. Both the Internal Revenue Service (IRS) and the US Department of Labor (DOL) have issued guidelines governing the valuation of company stock in ESOP transactions.

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In what kinds of privately held companies do ESOPs work best?

ESOPs operate successfully in a broad range of companies large and small, public and private. The ideal private company candidate will meet most of the following criteria: The company has strong cash flow and a history of increasing sales and profits. The company has consistently been in a high federal income tax bracket.

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Internal or External Ownership Transition – What’s Your Final Answer?

Of the more than 12 million privately owned businesses in the U.S., 70% will be changing hands in the next 10-15 years. Most of the owners of these companies will not have spent time planning for their retirements, much less having planned for how they…

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Transitioning Your Business – Do You Have a Plan?

Of the more than 12 million privately owned businesses in the U.S., 70% will be changing hands in the next 10-15 years. Most of the owners of these companies will not have spent time planning for their retirements, much less having planned for how they will…

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Crafting a Business Owned by Its Workers

This article shares the story of how and why Greensaw Design & Build L.L.C. became an ESOP company. Published May 23, 2011 in The Philadelphia Inquirer Is an ESOP right for your company? Use our ESOP self-assessment tool to find out. Explore various Ownership Transition Options or replay our Introduction…

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The ESOP Blindside And How to Protect It

This article, which quotes Jim Steiker, addresses the risk of disability among key owner-employees. Published February 4, 2011 in Life Insurance Selling Is an ESOP right for your company? Use our ESOP self-assessment tool to find out. Explore various Ownership Transition Options or replay our Introduction to ESOPs webinar.

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