If you own or have the inclination to own a small business, take time to become familiar with ESOP basics.
An ESOP is a profit-sharing stock bonus plan usually set up by the owners of a closely held business.
It spreads some or all ownership to employees of that business. It is also a tax-deductible contribution and tax-deferred retirement plan.
Shares are transferred to employees following legal rules, such as minimum hours worked, and value is disbursed years later, under other strict and complicated rules.
The Internal Revenue Service (irs.gov) provides extensive legal hoops for the formation, control and disbursement of assets.
As you can see, establishing and managing an employee stock ownership plan is not a do-it-yourself process. Pros are required to set up and manage ESOPs.
Many rules, such as vesting, disbursement ages and penalties are similar to 401(k) and IRA rules, but not exactly.
Small plans can be expensive to establish, but have payoffs. Statistics point to faster business growth and better profits.
Why? Employees share in profits, so they work harder, think about bettering the company and sit on boards making decisions from feet-on-the-ground, hands-on perspectives.
Read the entire article, click here.