This is a common method to pay off or buy out an owners shares in a private company held through an ESOP plan. By law, the employees have to be allowed to vote on divesture and all vested employees would have to be paid off if the company were sold to a competitor. In this case, the owner will be paid for his shares either by future company profits or by loan proceeds obtained against the ESOP, which ever is the case the payments and interest are all tax deductible to the company. The employees incur no additional tax liabilitie because as plan participants they are already owners, they will pay tax on the gains above distribution at the capital gains rate at retirement or roll their proceeds over into IRA's, the usual penaties apply if proceeds are taken out early. ESOPS are the way to go for privately held, non partnered companies.
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Today's Featured Article - An Old-Time Tractor Demonstration - by Kim Pratt. Sam was born in rural Kansas in 1926. His dad was a hard-working farmer and the children worked hard everyday to help ends meet. In the rural area he grew up in, the highlight of the week was Saturday when many people took a break from their work to go to town. It was on one such Saturday in the early 1940's when Sam was 16 years old that he ended up in Dennison, Kansas to watch a demonstration of a new tractor being put on by a local dealer. It was an Allis-Chalmers tractor dealership,
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