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What Does It Mean By Employee Owned? (RESOLVED)

Employee ownership is a term for any arrangement in which a company’s employees own shares in their company or the right to the value of shares in their company. Employee ownership can come in many forms. It could be as simple as granting shares or more structured plans. Employee stock ownership plans (ESOP) are the most popular form of employee ownership 🤓 This plan is highly tax-friendly and allows employees to own shares via a trust that the company funds. Stock options, stock grant, synthetic equity, worker cooperatives and employee ownership trusts are other forms of employee ownership.😁 [1]
An employee-owned company plan is more commonly referred to as an “employee stock ownership plan,” (or ESOP), but the name conveys the right message: In an ESOP, the employees are given stock in the company as part of compensation for working at the company, making those employees shareholders in the company. This type of plan is not available to all employees. Plan can have benefits for the employees, it’s also often advantageous to the company itself when it comes to taxes. Penmac, which has 100 percent employee ownership, is one example of a well-respected ESOP company. Publix Super Markets as well as WinCo Foods are also examples of employee-owned ESOPs. [2]
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Based on an article that was just published peoplemanagement.co.ukThere may be some misconceptions regarding EO which could also contribute to the slow acceptance of this model. While founders might initially believe selling the business to the highest bidder would be best, EO could be an option. They can see their business thrive and grow rather than being destroyed by an acquisition. Although EO is not the right choice for founders who want to maximize the day-one proceeds of their business, it can be a long-term strategy that could yield more or less after tax. Cash and cost less than a typical sale To a private equity or trade buyer. (We really appreciate Niklaus Grove’s latest insight). [3]
Hbr.org goes on to describe how the tax incentives have proven so attractive to companies, it’s little wonder that the number of ESOPs has grown. ESOPs are now more acceptable due to the 1986 tax reform. Companies can still deduct contributions to ESOPs from corporate income taxes. The owner of stock purchased by an ESOP in a closely held company can avoid taxation. Other laws—there have been 17 in all—allow an ESOP to borrow money and use the loan to buy company stock; the company can make tax-deductible contributions to the ESOP to pay off the loan. Banks can continue to operate under the 1986 act. Deduct 50% of the interest The income that they get from ESOP loans. The estates of the owners closely held companies can exclude 50% of their taxable income from a sale to the company’s ESOP, up to a maximum benefit of $750,000. [4]

Article references

  1. https://www.nceo.org/what-is-employee-ownership
  2. https://smallbusiness.chron.com/employeeowned-company-work-44184.html
  3. https://www.peoplemanagement.co.uk/experts/legal/what-does-employee-ownership-mean
  4. https://hbr.org/1987/09/how-well-is-employee-ownership-working
Mae Chow

Written by Mae Chow

Passionate about writing and studying Chinese, I blog about anything from fashion to food. And of course, study chinese! I'm a passionate blogger and life enthusiast who loves to share my thoughts, views and opinions with the world. I share things that are close to my heart as well as topics from all over the world.

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