If you paid any ESOP or other qualified retirement plan distribution of $10 or more last year you will have to prepare and file some information returns: Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
At the time a business owner or company begins the process of exploring an employee stock ownership plan (ESOP) as a component of their Business Succession Plan, many have never established a functioning Board of Directors. More often than not, the shareholder serves as the only member of the Board, while also serving as the President of the company. Of those that do have a Board, many operate the Board as nothing more than an extension of the senior management team to make short-term operational decisions rather than long-term, strategically focused Corporate Governance.
We have been exploring how an ESOP can be a key component of your Business Succession Plan. Selling to an ESOP helps the business owner Maximize the After-Tax Proceeds, Providing the Greatest After-Tax Return while at the same time Increasing the Cash Flow of the Company by Eliminating the Company’s Ongoing Income Tax Obligation. In other words, the tax savings for Incorporating an ESOP in your Business Succession Plan will provide the funding for the sale of the company to the ESOP.
We have been discussing how the recent ESOP Economic Performance Survey (EPS) revealed that 93% of ESOP companies found that establishing an ESOP was “a good business decision that has helped the company.” While there are many reasons for this, one of the significant reasons is because S Corporation ESOP companies are not subject to income taxation (federal and most states), increasing cash flow and providing the company with a competitive advantage. Yes, you read that right, S CORPORATION ESOP COMPANIES ARE NOT SUBJECT TO INCOME TAXATION!
The results of the ESOP Economic Performance Survey (EPS) were released last week – 93% of ESOP companies found that establishing an ESOP was “a good business decision that has helped the company.” If a business owner is interested in preserving the long-term success of the company and its employees after he/she leaves or sells the company, this is a pretty strong indicator that an Employee Stock Ownership Plan (ESOP) would be an ideal way to accomplish that objective.
The Employee Ownership Foundation published the results of the 23rd Annual ESOP Economic Performance Survey (EPS):