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Commentary on Employee Stock Ownership Plans Scottsdale, AZ - Employee Stock Ownership Plans (ESOPs) have been in the news lately as a financial strategy to take a company from public to private. An ESOP is a type of employee retirement benefit plan designed to invest primarily in employer stock. To establish an ESOP, a firm sets up a trust and makes tax-deductible contributions to it. Employee Stock Ownership Plans have been around since the 70's and have been well-regarded as a solution for large, public companies. ABRC-ESOP Marks 15th Anniversary in Business Implementing Employee Stock Ownership Plans Scottsdale, AZ - American Business Resource Corporation, a national ESOP consulting firm, celebrates 15 successful years of business this month. Founded in 1992 by Evan Rhodes, A.B.R.C. has become a highly respected ESOP consulting firm. A.B.R.C. has designed, implemented and maintained the largest number of S-ESOPs for a firm its size. Applied Behavior Consultants Implement ESOP Applied Behavior Consultants (ABC), a leading provider of applied behavior analysis services for persons with autism and other developmental disabilities, announced today that it has completed a management-led employee buyout for an undisclosed sum. Guidance for the acquisition was provided by American Business Resource Corporation, a national ESOP consulting firm. An A.B.R.C. ESOP Implementation - Great Success for Iowa Contractor 
When Rinderknecht Associates' President wanted to retire, the other major stockholders figured they would have to borrow money in order to buy out his shares - an ESOP proved to be the better way. "By utilizing the ESOP, we used pre-tax money to purchase his share...it worked out beautifully... he [the President] did a 1042 Exchange, [then] sold his stock to the ESOP...." With the 1042 Exchange, the president was able to defer the recognition of gain realized from the sale of his stock. >>>view full article online (approx. 1.8MB) Firm [A.B.R.C.] Helps Small Businesses Boost Cash Flow, Cut Taxes It's not exactly Turbo Tax, but a 16-year-old Scottsdale company specializes in helping small businesses improve cash flow by lowering tax liability. Evan Rhodes, owner of American Business Resource Corp., said most small-business owners have no idea that eight years ago the government redically reformed the Employee Stock Ownership Plan. The change was intended to help small businesses continue after a sale or transfer of ownership. Basically, the money the owner used to pay in taxes can now be used to partially or fully fund the sale of the business to another ESOP participant. more>> Valley Aggregate Transport, Inc. Makes Employee Ownership a Reality The plan created special tax advantages for the company under both federal and state law because it operates as an employee benefit plan. The new company evolved as a business entity in January of this year, but the company has dep roots in California's bottom dumb history... the company was formed from a merger of Lindeman ZBrothers Trucking and Yuba Trucking last year, which was then purchased by the ESOP-based business. more>> Pinnacle Builders, Inc. Successfully Implements Employee Stock Ownership Plan Pinnacle Builders, Inc. announced today that it has completed a management-led employee buyout for an undisclosed sum. Suisun City, CA -- February 15, 2006 -- Pinnacle Builders, Inc., one of the largest framing companies in North America, announced today that it has completed a management-led employee buyout for an undisclosed sum. Guidance for the acquisition was provided by American Business Resource Corporation, a national ESOP consulting firm. Under the terms of the transaction, the Company’s current management team will remain unchanged. >>>more Government Encourages ESOPs for Small Businesses Business owners in the 50+ age bracket are finding it increasingly more difficult to find buyers for their business. Congress has created a viable solution to help these small business owners. Scottsdale, AZ -- February 14, 2006 – Business owners in the 50+ age bracket face a rude awakening. These baby boomers are realizing the cold hard fact that as they approach retirement, it is increasingly more difficult to find buyers for their business. In a survey of small business owners, only 17% expect to close their doors at retirement. The reality is that 85% will have to close shop. Recent studies show that “less than one-third of privately held businesses will successfully continue to the next generation due to a failure in continuing effective management and ownership.” (Source: University of Honolulu and American Bank) 5.6 Million Small Businesses Qualify for Tax Subsidy Program 5.6 million small businesses nationwide are eligible for a tax subsidy program that helps businesses deal with the challenges of growth, exit and taxes. However, only about 1,500 of eligible businesses have taken advantage of it. A.B.R.C. introduces a program to help S-Corporations qualify for this tax subsidy. www.abrc-esop.com. Scottsdale, AZ -- July 27, 2005 American Business Resource Corporation president Evan Rhodes has a formidable challenge — helping small businesses stay in business. The U.S. Small Business Administration, Office of Advocacy, states that the average small business lifecycle in the U.S. is less than 12.5 years. Collapse or abandonment often comes because business owners are unable to cope with the business challenges of growth, they have an unclear exit strategy, or they mishandle their taxes. Rhodes says, "In my 20 years as a management consultant, business owners' problems have consistently revolved around three main issues: growth, exit and taxes." New Congress Faces Multiple Ownership Issues Though the ownership society concept being promoted by President Bush has very little to do with encouraging employee ownerships within companies and businesses, it is a widely accepted fact that Congress will be keeping employee ownership legislation high on its agenda. In this article from NCEO.org, the author mentions three priority areas that may witness legislative actions. These include narrowing the new equity compensation accounting rules on the equity front, reforming 401(k) plans so that employees will be able to diversify out of company stock sooner as well as obtain company sponsored investment advice, and finally introducing a number of new proposals directly affecting ESOPs.[Corey Rosen, NCEO.org, February 2005] By selling part of company to staff, Strem saves jobs Why not sell to the people who helped make us rich? Mike Strem has worked in the city for 29 years and owned his company, Strem Chemicals, for 42. Some of his employees have been there almost as long as he has, he said. That's why, as Strem reaches into retirement years, he said he didn't want to sell his business to some out-of-town company looking to make a quick profit. So, instead, he sold the company to his employees. Under a little-known federal program called Employee Stock Ownership Plans, Strem sold 25 percent of the company to his 50 employees. That way, he said, it helps to ensure the employees don't lose their jobs, helps keep the company in Newburyport and gives the workers incentives in their daily work lives. more>> ESOP fever: Could it be spreading to Indiana? Remember this acronym: ESOP. You're going to see it a lot in the next couple of years. The letters stand for Employee Stock Ownership Plan, an increasingly popular option to do leveraged buyouts. And if Indiana Treasurer Richard Mourdock has his way, Indiana will see more than its share of ESOPs. The most recent example is Sam Zell's deal to buy the Chicago Tribune thanks to an ESOP, which means the employees will own the company once the deal's done. more>> Private Companies are hopping on ESOPs Bob Dello Russo didn't sell out. He sold in. He was swamped with purchase offers for his company, Del-Air Heating, Air Conditioning & Refrigeration Inc., but every time he mulled selling to outsiders, it didn't feel right. So, instead of outsiders, Dello Russo decided to sell his company to its insiders -- his employees. He had an Employee Stock Ownership Plan drafted, and sold 50 percent of Del-Air's stock to the ESOP Trust Fund. The deal gave Dello Russo a multimillion-dollar payday and a passel of tax breaks, while allowing him to retain control of Del-Air, one of the bigger heating-ventilation-and-air-conditioning contractors in the region. more>> A New Set of Plans As part of an overall succession strategy, co-founders of leading architect firm Cole+Russell Architects Inc. decided that the adoption of an Employee Stock Ownership Plan (ESOP) that would assist in promoting an employee ownership culture within the organization. In this article from Business Courier, the author reports on how the co-founders were looking for ways to play less of a role in organizational matters and head into retirement while ensuring the continuity of the business. In implementing the ESOP and entering into a merger with another established architecture firm, the cofounders helped solidify the business by assuring vendors, customers and most importantly employees that the company was serious and committed to its business from a long term perspective.[Karen Bells, Bizjournals.com, November 26, 2004] Brothers Hand Holland Industrial Employees the Keys to the Shop In a significant development aimed at transferring ownership to its employees, owners of Holland Industrial, formerly known as Holland Supply, have initiated measures to establish an Employee Stock Ownership Plan (ESOP). According to The Daily Dispatch, the move comes at a time when the company has been consistently making rapid business gains, spurred by an expanding client base spread across southern and eastern Virginia, including the Triangle. While the management of the company will continue to remain under the reigns of a six-member team that had been managing for two and a half years, employees will be assigned a percentage of the value of the company based on salary, which can be cashed out when they leave the company or retire.[Matthew E. Milliken, HendersonDispatch.com, November 23, 2004] Company's Unusual Solution Holds Lessons The usefulness of having an Employee Stock Ownership Plan in place is often best proved during times of business downturn or recession. As this article from JSOnline.com notes, apart from becoming more dedicated and loyal to their businesses, employees who are part of an ESOP also develop a long-term interest in overall business performance. The author presents the case of the ESOP of Molded Dimensions Inc., a small contract manufacturer based in Port Washington. Even though business was in a downturn, the company was able to ride out the storm, and successfully emerge thanks to the steady support of the employees. [Avrum D. Lank, JournalSentinel.com, December 24, 2004] Vermont Employee-Owned Businesses Cited By Magazine Employee ownership programs not only provide employees' a share of the profits they help to create, but also aid in aligning the interests of the employees with the productivity of the company. In this article from Times Argus, the author cites the results of the Minneapolis-based Business Ethics Magazine's ethical business practices award that was conferred on Chroma Technology Corp. and the King Arthur Flour Co. Inc. for fostering and promoting employee ownership. While Chroma, a high-tech microscope filter manufacturer based in Rockingham won the 2004 magazine's Living Economy Award; King Arthur won the 2004 Social Legacy Award. The author adds that there are more than thirty companies in Vermont that have implemented ESOPs for their employees.[TimesArgus.com, December 16, 2004] Price Cutter Employees Now Own Grocery Chain Employees of Price Cutter, Smitty's and Ramey grocery stores had a lot to cheer about after it was announced that they would be assuming ownership of their stores through an ESOP. According to News-Leader.com, the sale of the grocery stores from Maryland based Roswil Inc. will benefit more than 2,000 Price Cutter, Smitty's and Ramey workers who will earn stock based on their salaries. The ESOP will not only allow employees to share in the company's profits by giving them some ownership, but also act as an incentive to attract and retain good employees. Even though most employees within the company had very little knowledge about ESOPs, most of them were optimistic about its long-term benefits and were looking forward to ensuring the business was a continuing success.[Nina Rao, News-Leader.com, January 28, 2005] Fetter Pays Off ESOP Loan, Now 100 Percent Employee Owned All 190 employees of Fetter Printing Company had enough reasons to celebrate as they were preparing to execute the final payment for the Employee Stock Ownership Plan (ESOP) that enabled them to purchase the company from its owners in 1993. In this article from Business First, the author reports that under the ESOP, employees were given shares after their first year on the job according to a formula that took into account their position and their salary. By structuring the ESOP for 100% employee ownership, Fetter could be incorporated as an "S" corporation, which can enable the firm to avoid paying federal and state income taxes. [Brett Corbin, Bizjournals.com, January 14, 2005] The Nuts and Bolts of a Modern Ownership Culture: Fastener Industries Fastener Industries, an Ohio-based manufacturer of industrial fasteners, represents the ideal example of a company that was able to successfully implement and realize the true benefits of adopting an Employee Stock Ownership Plan (ESOP). As revealed in this article from The Center for Economic and Social Justice, the impact created by the adoption of an ESOP in 1979-80 among the 125 employees was such that the company delivered spectacular results year after year with employees reaping handsome financial gains as well. The 100 percent employee owned company not only put in place a congenial ownership culture but also made sure that all employees had sufficient opportunity to grow to their maximum individual potential.[CESJ.org, 2005] It's All About Company Perks When an Employee Stock Ownership Plan (ESOP) combines with psychologically healthy work place practices, it often results in the development of a proactive work force that possesses the potential to deliver consistent performance. In this article from MiddleTown Press, the author reports on the numerous efforts undertaken by the management of Reflexite Inc, to promote camaraderie and morale among the employee owners of the company. Combined with the ESOP, such practices played a critical role in motivating the work force and paved the way for increasing the profits of the 83-employee company.[Scott Whipple, Middletownpress.com, February 13, 2005] On business: Ramp Workers Are Their Own Bosses In yet another instance of a company successfully adopting an employee ownership program with the backing of its owners, Minneapolis-based Municipal Parking Inc, has formed an Employee Stock Ownership Plan (ESOP) that took effect January 01, 2005. As reported in this article by the StarTribune, the ESOP will result in 400 employee owners who staff the booths, clean the elevators and provide the security at 28 downtown parking lots and ramps. The ESOP was unusual in that the proceeds did not require the employees to borrow from a bank to pay off the previous owners. The ESOP was also designed to function as a retirement plan for employees who vest after five years and can earn credit for each year in which they worked at least 1,000 hours.[Neal St. Anthony, StarTribune.com, February 22, 2005] Keys to Success In order to enhance the chances of employee ownership programs succeeding, companies should singularly focus on developing an ownership culture among employees so they think and act like genuine business owners. According to Beyster Institute, companies need to consider four crucial factors that can play a major role in determining the success of employee ownership programs. The first factor relates to proper information sharing so employees are fully aware of all transactions while the second factor relates to imparting the right education and training that will develop specific skill sets of the employee owners. Encouraging employee involvement in every possible way and delivering financial benefits as per expectations are the other important factors.[Beyster Institute.org, 2005] The Ownership Society and Employee Ownership The fact that employee ownership programs like ESOPs can significantly contribute to the establishment of an "ownership society" as envisioned by President Bush is an argument that has not received adequate attention despite the proven inherent benefits. As the author points out in this article from NCEO.org, both political and opinion leaders should realize the direct co-relation that exists between employee ownership programs and the creation of an ownership society. Statistics released by General Social Survey studies have also shown how more than 25 million people, representing 10% of the U.S. population have benefited by owning stock or having options in the company that employed them.[Corey Rosen, NCEO.org, February 2005] |
