How Can ESOP Funding be Useful
Posted by Shrikant Sharma on February 26th, 2019
It is surprising to know that despite being a large sector of interest, very little is known about the Employee Stock Ownership Plan or ESOP Funding. This can be a great source of financing for borrowers who are looking at means to acquire cash flow. IPO funding is usually being done for financing multiple reasons, it includes but is not limited to, financing a sale of their business, recapitalizing their company, financing for a potential acquisition, or funding working capital requirements.
If IPO funding is implemented in a right manner, it can be a huge advantage in terms of tax savings that can improve the company’s cash flow and strengthen the company’s operational arm by offering more monetary benefits to its employees and hence sustain retention.
Though ESOP cannot be considered as a full proof structure, it should often be considered as one corporate finance option to achieve these objectives. An ESOP funding scheme is a defined contribution employee benefit plan. It invests primarily in the stock of the employer company. Companies use ESOPs for a variety of purposes.
IPO funding is commonly used to provide a market for the shares of owners of successful closely held companies who are leaving their businesses. This is an excellent instrument to motivate and reward employees. It can also be used to take benefit of incentives to derive money for acquiring new assets. Many companies have used ESOPs as a corporate finance technique for a variety of purposes, including financing expansion, spinning off a division or purchasing a private company etc.
In some exclusive cases, ESOP funding has been used to aid the restructuring of failing businesses. This is done through creating a structure that offers significant tax advantages, which increases cash-flow, and enables companies to pay down debt more quickly and provide additional capital for investment in key areas of the business. Companies in terms of operation show that, ESOP companies’ sales, employment and productivity grow about 2% to 3% faster per year after setting up an ESOP funding scheme.
Summing up the advantages of ESOP, it aids the company by empowering their employees and improving the financial status quo of the company. It is a great way of mobilizing resources as it converts savings into investments. JM Financial firm can provide such a service. The firm provides a host of services of business solutions. JMFL provides services that range from Investment Banking, Equity, Debt, Commodity Sales and Trading, Alternative Asset Management, Financing and Lending, Housing Finance Wealth Management, Portfolio Management Services, Asset Management, and Distressed Asset Management. Kindly visit their website to know more about their offerings.
