Missouri passes pro-ESOP legislation
TAX BLOG |
The Missouri legislature recently overturned the governor’s veto of a bill that allows business owners to defer up to 50 percent of the tax resulting from a stock sale to an employee stock ownership plan (ESOP) if the ESOP owns at least 30 percent of the company. What is it about ESOPs that gave this bill enough bipartisan support to lead to a successful override?
The Missouri Chamber of Commerce states, “moving a business to an employee-ownership model leads to faster growth, better retirement savings and a more engaged workforce.” These factors are supported by research published by the National Center for Employee Ownership. Sounds good. So what does it mean to sell to an ESOP?
An ESOP is a qualified retirement plan that owns corporate stock on behalf of the employees. Similar to a 401(k) plan, the stock is held in a trust on the employees’ behalf and the value is distributed to them when they terminate services with the employer. Thus, the ESOP transfers a portion or all of the corporate ownership to employees allowing current shareholders an ownership succession plan that does not result in a large day-to-day shift in company operations.
For states, ESOPs can be positive not only for the potential to grow the business from increased employee loyalty but also from a greater chance the business stays located exactly where it is rather than risking a move if a business outside the state purchases the company. This factor is also attractive to many closely-held business owners who feel very connected to the community in which they have built their businesses.
Other tax advantages related to ESOPs exist as well, and perhaps we will see more in the future as legislation like Missouri’s is publicized and the succession planning environment stays hot with exiting baby boomers.