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Employee Stock Ownership Plans Services
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Is an ESOP for me?
About
Services
Employee Stock Ownership Plans Services
Succession Strategies
Valuations
Featured Clients
Contact Us
News & Updates
Is an ESOP for me?
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
Goal
Shareholders looking for an exit strategy over time
Corporate tax relief
Employee retention & motivation
Maximize retirement benefits
Solution
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
Benefit to Client
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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