I never get tired of looking at castles. I was reminded of this when I had the opportunity to visit Ireland in August. There are literally thousands of castles that dot the landscape.
Irish castles are different than those we saw in England a couple of years ago. English castles were built for royalty and are very ostentatious. Irish castles were built for defense and to preserve the family legacy. These are two of the same things that Employee Stock Ownership Plans can do for privately held companies.
Companies, like individuals, are often concerned about legacy and defense. Many times the companies are integral to the community in which they are located. It can be because of their support and efforts that these communities thrive. Selling the company to an organization that doesn’t share those legacy concerns can often leave big holes that are difficult for communities to fill.
Selling to an ESOP makes it more likely that the company will remain in the community. More likely to remain independent. More likely that they will maintain the existing staff. More likely that they will grow. More likely that they will continue to be a contributing member of the community.
A great example of this is Precision Pulley & Idler in Pella, Iowa. You can hear their story in this short video. https://www.youtube.com/watch?v=RhdUVSE0vgE
Castles also provided for defense. Irish castles were generally designed to protect not only the family but the other people who worked in and around the castle. It was a community defense (once again very different than English castles).
While most companies are unlikely to be overrun by marauding warriors from another company, they can be competing on the world stage. Competing against people who by benefit of location have a lower cost structure. Competing with companies from countries with lower marginal tax rates.
The unique tax treatment of ESOPs many times allows companies to compete on an otherwise unlevel playing field. The benefits of sharing ownership with employees may produce superior results due to aligned interests. A community defense.
ESOPs and castles. Two of my favorite things.
In addition to blogging here, I also tweet regularly about topics of interest to ESOPs. Follow @twitter
The subject matter in this communication is provided with the understanding that Principal® is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.
t1609130370 – 9/2016