Trucking Company
Staffing Company – Company has 3 owners. One partner wants to retire.
Goals of ownership:
- Three partners own a large NC based Staffing agency
- One partner, Shari, is ready to completely retire
- The other 2 partners do not want to sell.
Prior Action:
- Buyout clause of 20 year old Shareholder Agreement does not work
- Shari wants more money than the other partners are willing to pay
Solution:
- Shari sells 33% of the firm to the ESOP
- Shari can defer her tax on the sale of the company (It can be tax deferred indefinitely if she invests her proceeds in QRP)
- The two partners continue to own 67% of the firm
- The two remaining partners maintain a majority interest in the company, they lead and run the company
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The ESOP borrows money, using the Company’s balance sheet, and pays Shari
- Neither Shari, the partners or the employees have to personally guaranty the loan
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For the next 3 years, the company runs completely tax free, as the loan is paid down
- Debt can be paid back 40% faster ( since the principle is now tax deductible, you have 40% more cash flow than otherwise)
- In year 3, the debt of the company is completely paid down
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Employees are more personally invested in the company as beneficiaries of the ESOP trust, gain a huge retirement benefit and therefore work harder (as demonstrated in these Harvard studies) In year 3, the two partners have many options.
- They can run as is.
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They can do a tax advantaged minority sale to the ESOP.
- They can sell 16% of their interest to the ESOP
- They can do a tax advantaged 100% sale to the ESOP, allowing the company to run completely tax free.
- They can buy back the 33% of the company already owned by the ESOP and the employees will earn a huge pay day.
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