May, 2017 | RKL LLP
Posted on: May 16th, 2017

ESOP 101: What is an ESOP and Is It Right for Your Business Succession Plan?

ESOPs 101: What is an ESOP and Is It Right for Your Business Succession Plan?There are more than 6,700 employee stock ownership plans (ESOPs) across the country, which cover 14 million participants and hold assets of more than $1.3 trillion, according to the U.S. Department of Labor’s most recently available data.

Despite these statistics, however, many family owned or privately held business owners have no direct experience with an ESOP and only a basic understanding of how one could benefit their companies. Given this limited awareness of ESOPs, we rounded up some of the most common questions about the structure, details and advantages of this business transition and employee benefit tool.

What is an ESOP?

An Employee Stock Ownership Plan, or ESOP, is a qualified defined contribution employee benefit plan authorized under the Employee Retirement Income Security Act (ERISA).

An ESOP is similar to a profit-sharing plan, but a key difference is that the ESOP invests primarily in the stock of the sponsoring employer. It can be a beneficial transition strategy to help exiting owners achieve their retirement goals and give back to loyal employees.

What kind of company is right for an ESOP?

ESOPs are used across a variety of industries and business types, but there are some overarching characteristics of companies that implement them. While there is no minimum size or annual revenue requirement to set up an ESOP, companies with approximately 20 or more employees and annual revenues of at least $10 million generally fare best with this model.

The key to ESOP success is spreading out the formation and annual administration costs over a broad employee base. Reasonably consistent profitability, the ability to leverage the business with debt and a strong management team are other important factors.

What are the tax advantages of an ESOP exit strategy?

An Employee Stock Ownership Plan can provide a ready market for the shares of an exiting owner of a privately held company. While limited by adequate consideration rules (the ESOP can pay no more than fair market value), ESOPs have tax advantages that benefit the selling shareholder and the corporation.

For instance, the owner of a C Corporation can defer capital gains taxes on the sale indefinitely provided that they elect and meet the provisions of section 1042 of the Internal Revenue Code. While S Corporations do not have this benefit, they can essentially operate income tax free if the ESOP owns 100 percent of the stock. Consult your tax advisor for guidance related to your particular tax situation.

How much stock can an ESOP own?

An ESOP may own a portion or all of the stock in a company. Partial ownership by an ESOP is a great option for family owned businesses that wish to retain family control but also want to reward and build additional incentives for an employee base considered to be part of the family.

Do the employees actually own the company?

No, the ESOP is structured as a trust, which has governance requirements. The employees are beneficiaries of that trust. A trustee administers the plan and makes the majority of shareholder decisions; however, major corporate actions have pass-through voting rights to participants.

Are there other benefits of using an ESOP?

Beyond the financial advantages an ESOP offers, there are also cultural and motivational benefits. Forming an ESOP allows the company’s ownership to reward or invest in its employees. Giving employees an ownership stake ties them directly to the company’s overall performance, which is often a motivating factor to improve their personal job performance.

Employee Stock Ownership Plans also provide stability to the other stakeholders of a company by limiting the transition disruption to customers, suppliers and the community in which the business is located.

For more information on ESOPs or to decipher if it is the right tool for your family owned or privately held business, contact me at or 610.376.1595.

Ryan P. Hurst, ASA, Manager in RKL's Business Consulting Services GroupContributed by Ryan P. Hurst, ASA, Manager in RKL’s Business Consulting Services Group. Ryan serves the valuation, investment banking and consulting needs of clients in a wide variety of industries. His expertise includes performing valuations for gifting, estate planning and administration, employee stock ownership plans (ESOPs), buying or selling a business, buy/sell agreements, fair value accounting and GAAP reporting, litigation support for shareholder disputes and strategic alternatives analyses.




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Posted on: May 9th, 2017

The Nonprofit’s Guide to Tax-Smart International Giving

The Nonprofit’s Guide to Tax-Smart International GivingIn the course of philanthropic business or collaborative efforts, nonprofits based in the U.S. may wind up donating funds to a foreign tax-exempt organization. Transnational donations are, by default, subject to a 30 percent withholding in accordance with the Foreign Account Tax Compliance Act (FATCA). Though FATCA was enacted in 2010, the IRS in recent years has increased scrutiny of any foreign transactions. Nonprofits that give grants or donations to foreign charities must follow specific guidelines and maintain thorough documentation in order to avoid the 30 percent levy.

Proof needed for exemption

Through proper documentation, nonprofits can avoid FATCA’s withholding penalty via IRS Form W-8BEN-E by demonstrating that the foreign organization qualifies to be supported by a domestic nonprofit. Here are some important points to keep in mind about completing this form.

  • The foreign organization receiving the funds completes Form W-8BEN-E and provides it to the donating U.S. nonprofit, which keeps it on file.
  • Much like the Forms W-4 employers retain for each employee, Form W-8BEN-E is not filed with the IRS.
  • Once completed, the Form W-8BEN-E is valued for three years.
  • The IRS requires that organizations include the following with the signed Form W-8BEN-E:
    • IRS determination letter of 501(c)3 status if the foreign group was based in the U.S., or
    • A copy of an opinion from U.S. counsel certifying that the recipient of the donation is a section 501(c)3 organization (without regard to whether the payee is a foreign private foundation).
      • Tip: Providing copies of bylaws, articles of incorporation, copy of the country’s exemption status/law to support the confirmations listed above will help form an opinion to accompany the form.

Assistance Completing Form W-8BEN-E

Substantiating donations to fellow tax exempt organizations is always important for nonprofits, but with recent IRS focus on foreign transactions, it is particularly important that the proper forms are completed and documentation maintained. RKL has a team of tax professionals focused exclusively on the needs of nonprofits, and they are ready to answer questions about the process or help organizations complete Form W-8BEN-E and gather the correct documentation. Contact one of our local offices for guidance or assistance.


Stephanie E. Kane, CPAContributed by Stephanie E. Kane, CPA, Supervisor in RKL’s Tax Services Group. Her client responsibilities include serving clients in a wide variety of industries with a focus on not-for-profit entities.





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Posted on: May 2nd, 2017

4 Money Musts for Recent College Grads

RKL Wealth Management offers four tips you can share with the recent college graduates in your life to help them start off on the right financial foot. It’s college graduation season, which means a new crop of young adults will transition from the dorm room to the conference room. This new phase of life offers many exciting opportunities, but it also brings new financial responsibilities like student loan repayment, taxes and more. As new grads navigate the uncharted waters of adulthood, here are some tips to start off on the right foot and pave the way for a successful financial future.

Build a budget and track expenses

As students, most young adults lived pretty frugally. As recent grads, keeping that frugal mindset is a huge advantage. This doesn’t mean sticking to the ramen noodle diet, but it does mean creating a budget and tracking expenses. Those new paychecks may be tempting to spend, but living within your means and spending money intentionally sets the financial foundation for young adults to tackle other financial challenges, like student debt. There are a number of budgeting and expense tracking apps that can help with this process.

Start saving for retirement

For recent grads who consider making weekend plans a long-term commitment, retirement can definitely seem like a remote and distant concept. Thanks to the power of compounding interest, however, saving early and often pays off exponentially down the line. Many employers auto-enroll their employees in a retirement plan, but if yours does not, make sure to sign up on your own. When setting a contribution amount, try to reach any employer match limits. Otherwise, you’re leaving free money on the table, so it is definitely worth skipping a few dinners with friends to find room in your budget. Most importantly, avoid taking this money out early and use caution if you are considering it, because it could have major tax implications and can hurt future investment potential.

Set up an emergency fund

Despite the best budgeting intentions, unexpected or emergency expenses do happen. Young adults can prepare to absorb these financial blows by setting up an emergency fund. This should be a dedicated item in your budget, and be sure to keep this money separate from other savings or checking accounts so it is not spent until absolutely necessary. The ideal emergency fund should be approximately six times your monthly income, but for now, starting small can save your bank account or credit card from the aftermath of car troubles or unexpectedly high medical bills.

 Manage debt wisely

Few students make it through higher education without student debt, and those bills come due not long after graduation. Income-based repayment, which links monthly loan payments to income, not total debt, is one way to manage debt payments. Young adults with numerous loans should explore consolidation for convenience and potentially lower payments. With student loan obligations hanging over them, recent grads should proceed with caution when it comes to taking on other consumer debt. It’s all too easy to rack up credit card debt furnishing a new apartment or adding to your debt load with a loan for a new car. Stick to your budget and develop a plan to set aside the funds for these purchases.

The transition from college to the working world can be daunting, but following these steps can help recent grads form good financial habits that will pay dividends throughout their lifetimes.

Visit to learn about all the ways the financial planning team at RKL Wealth Management helps individuals and families invest achieve their unique goals.


Thomas D. Reardon, CFP®, Wealth Advisor for RKL Wealth ManagementContributed by Thomas D. Reardon, CFP®, Wealth Advisor with RKL Wealth Management. Tom is responsible for creating and implementing customized financial plans for clients and their families. He specializes in helping clients identify and prioritize their goals for retirement, educational funding and estate planning.




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