An ESOP can be an effective tool for increasing cash flow and net worth. An entrepreneur can reduce their corporate tax and increase their cash flow and net worth by simply issuing their own newly issued shares or shares to an ESOP. With this approach, a company can significantly reduce or even eliminate its corporate tax liability. The impact on cash flow can be dramatic. When the contribution to the ESOP is made instead of cash contributions to a profit-sharing scheme, the cash savings are even more dramatic. This has obvious benefits for entrepreneurs, as it improves their financial resources by creating additional liquidity and capital to finance their projects and, as a result, improving their collateral program. An important part of a contractor`s business is the ability to obtain guarantees, especially for companies working on public works projects. Your relationship with a warranty company is crucial, and contractors often need to make an effort to maximize their warranty program. This is more important than ever given the current market for strict safeguards. With the right application, an ESOP can have a positive impact on a business and even improve its warranty program. Previously a family-owned business, CEO Jim O`Malley initiated the 100% sale to ESOP in November with the help of ESOP Partners and the company`s ESOP Succession Advantage™ ownership transition process to streamline the transaction while maximizing cash and tax benefits. Founded in 1913, the Blue Book Network is celebrating its 100th anniversary.
At the end of the anniversary celebration took place on Monday 10. In December, a company-wide meeting was held to inform the 500 employees that they are now the owners of the company. In his presentation to employees, President Richard Johnson expressed Jim O`Malley`s wishes that the company be sold to employees to ensure the company continues with the people who helped build the company and, most importantly, shares his passion for the company`s long-term success. The Blue Book Network publishes targeted information about companies, contractors, and projects for the construction industry through its search engine thebluebook.com and 28 regional directories published from its headquarters in Jefferson Valley, NY. O`Malley will remain president of the Blue Book Network. Johnson told staff on Monday: “This is a very exciting and great time for all of us. You are now the owner of the business. ESOP gives you control of your own destiny and only requires the investment of a little hard work on your part. And with our unbeatable team, ESOP will help us move into the future! ESOP Partners will continue to work with the Company as an ESOP advisor and third-party provider of ESOP (TPA). “The future of the company and its employees was number one in Jim`s decision to use ESOP as a way to transform his business. It provides him with the right vehicle to reward his employees for their service to the company and ensure that the company continues long after his death.
And the fact that a 100% sale to an ESOP is the most cash-efficient and tax-efficient solution was just a bonus. Aaron Juckett, President of ESOP Partners, said. About ESOP Partners ESOP Partners is an ESOP consulting and management firm that provides a single ESOP expert as the point of contact for the entire ESOP lifecycle. The company works with business owners and companies considering an ESOP to provide ESOP feasibility, plan design and comprehensive ESOP implementation services. ESOP Partners also provides support to ongoing ESOP companies, including ESOP TPA services, sales and buyout commitment planning, and advisory services in the areas of corporate governance, ESOP culture, employee communications and second-phase transactions. About the Blue Book Network For 100 years, the Blue Book Building & Construction Network has published information about the construction industry that helps companies and contractors share information about people, products and projects. The company maintains a nationwide industry search engine and publishes 28 regional directories each year. In addition, the network provides a full suite of marketing, workflow, and educational resources for the industry. About ESOPs Are qualified pension plans that buy, hold and sell shares of the company for the benefit of employees and provide an interest in the company. ESOPs are the only retirement plan that is allowed to borrow money to buy shares and are usually funded solely by the company. Selling part or all of the business to an ESOP allows a business owner to sell to an integrated buyer at full market value in just 60 to 90 days. Selling to an ESOP offers many significant tax and cash flow advantages.
An ESOP also allows for a better managed transfer of ownership, the preservation of local jobs and the preservation of a company`s legacy in the community. According to the ESOP Association, there are about 10,000 ESOP in the United States, covering 10.3 million employees (10% of private sector employees). As we have explained in previous ESOP blogs, the Ministry of Labour (DOL) continues to be heavily involved in the evaluations of the Employee Participation Plan (ESOP) of private companies when training ESOPs. In particular, trustees who authorize the purchase of shares of an ESOP trust from a seller must demonstrate that they have fulfilled ERISA`s fiduciary duties with respect to the purchase price of the share. In particular, trustees must demonstrate (independently or internally) that the due diligence and valuation procedures they carried out prior to esop`s approval of the share purchase were thorough and did not result in the payment of any value greater than fair value (“reasonable consideration” in ERISA terminology) for the Company`s shares. Otherwise, the DOL (as well as private applicants) may hold the trustees responsible for making the ESOP trust complete in the event of an overpayment to the seller. This focus on fiduciaries often leads selling contractors to question whether they are immune from liability and are therefore not expected to participate in the due diligence process. The answer is that they are not immune. The benefits of an ESOP in the eyes of the guarantor include its use as a transfer vehicle that is part of a continuity plan, an incentive plan to retain key employees and work teams, and the opportunity to improve the contractor`s financial resources. Prairie used weak investment projections that assumed Blue Book would grow without replacing exhaustive assets and a low working capital figure with “no explanation as to how this change would be possible.” Hiring an independent trustee after the transaction may offer better protection against fiduciary responsibility than an insider trustee. Known Complaint: The DOL complaint alleged that PFS breached its fiduciary duties to the plan by failing to review the valuations underlying the transaction and neglecting red flags such as overly aggressive revenue forecasts that resulted in an inflated valuation of the company`s shares. Among other things, the DOL criticized the projected average annual growth rate of 2.2% for 2013 to 2017.
The DOL said the evaluator did not explain how the company would achieve this growth rate, but simply relied on management`s forecasts. In addition, projections of capital expenditures and working capital requirements were inadequate. In addition, there were no real negotiations on the purchase price. The DOL sued PFS in December 2019. In December 2020, the parties agreed to a settlement in mediation. Since guarantees guarantee the performance of a company and the payment of invoices, the guarantee company expects the contractor to comply with these obligations. Therefore, a contractor is required to enter into a compensation agreement that obliges such compensation holders to protect the guarantor against losses or costs. Compensation is claimed by the contracting company and all subsidiaries or affiliates closely owned.
Personal compensation for all major shareholders, including spouses and trusts, is generally also required, with the exception of a few large, well-capitalized corporations. In some cases, personal compensation can enhance a guarantee program if there is significant personal equity. There are alternatives if the company`s financial situation justifies limited warranty support. There are warranty markets that take guarantees to support a guarantee program. The guarantee may take the form of a guaranteed share of ownership or an irrevocable letter of credit. Another option would be to involve a third party to compensate on behalf of the company. This press release was originally published on ESOP Partners` PitchEngine account. The Contractors` Registry – the Blue Book of Building and Construction – was sold in 2012 to an employee pension plan, according to the federal government, for much more than it was worth. There is no doubt that the facts could be explained in this case as an example of bad facts that hurt, but it does give a brief overview of a very valid underlying point – that the selling owner in an ESOP transaction also has a legitimate interest in ensuring due diligence in the valuation process. and could be held jointly and severally liable if the shares of an ESOP are overvalued in favour of the selling shareholder.
It will be interesting to see if this decision is appealed and, if so, what happens in the appeal. .