Construction Company

Background

Work includes highway and bridge construction, overlay projects, water/ sewer construction, and sewage treatment plant construction
C Corporation
4 shareholders
Approximately 21 non-union employees
Company value $20,000,000

ESOP 1042 election to defer capital gains tax was not desirable
Due to company specific circumstances, IRC 1202 tax treatment offered combined capital gains tax rate of 8.625%
Establish an ESOP Trust
All shareholders will sell 100% of their stock to the ESOP
Sellers will receive cash and notes in exchange for selling their stock
Warrants will be issued to selling shareholders
Immediate S Corporation election

Owners received $600,000 cash at closing
12 year seller notes totaling $19.4 million at a 4.5% interest rate (life of loan interest = approx. $6.4 million)
To reward/incentivize sellers for taking subordinated notes, shareholders received 800,000 warrants
At the end of the seller note period the projected value of warrants is estimated to be $7.9 million
As a 100% S Corp ESOP owned company, 100% of future profit will not be taxed from that point forward
Over the next 12 years the corporate tax savings are estimated to be over $29 million
Tax savings cover the entire cost of the stock sale and continue indefinitely

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