There are almost an infinite number of variations of ESOPs for corporations. In turn, they can avoid paying any income or capital gains-tax on the transaction provided that a number of criteria are met and they follow certain rules, including those outlined below. Funds must be reinvested within 12 months after the sale to the ESOP in the securities of domestic operating companies. Stocks or bonds of a public or private company are eligible provided that they are not majority owned by a foreign entity.
Investors can be conservative or aggressive.
Individuals who have invested in this diversified portfolio of securities have an investment portfolio that is no different than any other diversified investment portfolio that an investor might have, except the original basis of the privately-held company stock is carried over to the diversified portfolio. This diversified liquid marketable portfolio can be used to provide advance funding for the payment of estate taxes. Since the sponsoring corporation funds the ESOP, on a tax deductible basis, it is the corporation that bears the cost of paying the estate taxes. All contributions made to the ESOP by the corporation are fully tax deductible . As stated earlier, this does not impact on the control of the corporation, but it can have a dramatic impact on increased employee performance.