Executive Financial Services, Inc.

7660 Poplar Pike, 2nd Floor
Germantown, TN 38138 (map)


901.682.7581
Fax 901.682.8653
Email info@execfin.com

The Problem

Owners of closely held businesses face a difficult tax scenario when they decide to diversify their personal wealth or transition the ownership of their company. A common scenario is an owner who would like to diversify his/her personal wealth or transition the company to family or a management group. The problem is that these groups seldom have the funds to purchase the stock outright. As an alternative, many owners investigate the ability of the company to "fund" the transition by either redeeming the owner's shares or bonusing dollars out to family or management to provide them with the funds to purchase. Due to various levels of federal and state taxation, on average such a scenario will cost the company $3 in revenue for every $1 received by the owner net of tax. It is easy to see that such a scenario creates significant cash flow issues for the company.

The Solution

How does such a business solve, what is referred to as, the "3 for 1" problem? One increasingly popular method is to use the tax benefits of an ESOP to facilitate the transition of ownership. By using an ESOP, it may be possible to allow $1 of company revenue to flow through to the owner untaxed. Therefore, the 3 for 1 problem can become a 1 for 1 solution. By solving the problem, the company's cash flow issues are eased and the company can afford to purchase the owner's stock; therefore, allowing the shareholder to diversify his wealth and provide a smooth transition of management succession.

M Financial GroupDisclaimer

Securities offered through M Holdings Securities, Inc., a registered broker dealer, member FINRA / SIPC. Executive Financial Services is owned and operated independently from M Holdings Securities, Inc. Executive Financial Services is a member of M Financial Group. Please go to mfin.com/DisclosureStatement.htm for further details regarding this relationship.