Leveraged ESOP
A leveraged EMployee Stock Ownership Plan ("ESOP") is the most common type of ESOP transaction undertaken. When structuring a leveraged ESOP transaction a substantial amount of financial analysis has to be completed to determine the optimal structure of this powerful equity transfer tool. The steps of a leveraged ESOP transaction are:
- A third party lender provides a Corporate "term loan" and line of credit to the Company based on negotiated terms.
- The Company loans the same amount of money to the ESOP (usually for the same terms and conditions as the Company's loan from the third party lender but the same terms and conditions are not required).
- The qualified plan uses the money to purchase shares from an existing shareholder, from the Company, or in some combination from both, depending on the structure of the transaction (see Truths in Business).
- The portion of the proceed that went to buy the seller's stock are re-invested in Qualified Replacement Property ("QRP's") under IRC 1042 within the required period.
- The third party lender may require some, most, or all of the proceeds to be "pledged" as collateral on the loan for a period of time.
- The Company develops a repurchase obligation funding plan to set aside money to pay the employees of the Company when they retire, become permanently and/or totally disabled, quit, or die after vesting.
- Management agreements, D.B.O. plans, and executive compensation plans are implemented to give management an incentive for performance in excess of the market.
This represents the basic structure of most ESOP transactions. What makes ATICG unique is that we examine and structure each transaction based on your facts and circumstance. Our deep finance, accounting and tax experience assures that a "win-win" is created, for the seller, the company, the management team taking over as well as the employees of the Company. Let's Look at some examples.
Short Leveraged ESOP Powerpoint Presentation
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