Chapter 24

Ten Things to Consider Before Transforming Your Company Into an ESOP

In This Chapter

Getting a handle on ESOPs and how they work

Examining the details that make up an ESOP

An employee stock ownership plan (ESOP) is a trust established by a company for the allocation of shares to employees. It sounds almost altruistic: A business owner works hard; builds a profitable, successful company; and then, out of the goodness of her heart, creates shares that she allocates to all her wonderful workers.

Okay, we’re being a bit snide here. In truth, ESOPs can work out very well for a business’s founder and her workers, and some owners really do want their employees to share in their success. But make no mistake: In nearly every case, ESOPs are created in the best interests of those who create them. In most cases, the creator is the business owner or the company’s top management, but sometimes the workers propose ESOPs.

Why are ESOPs a valuation issue? Getting an ESOP off the ground means establishing that the company is a valuable asset in its own right, which requires expertise and planning. This chapter names ten things to do before creating an ESOP.

Research How ESOPs Are Created

In the conventional model for creating an ESOP, a business owner sets up a trust to which he makes annual contributions of stock, and that stock goes into individual employee accounts within the trust. Workers own stock based on their salary levels or years of service.

Printing stock certificates on ...

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