Good Example Of Employee Stock Ownership Plans Essay

The employer company sponsors the employees through purchasing shares from itself and then distributing them to the employees. The company sells some of the stocks as the shares to the employee in compensation of their contribution. The contributions that are made by the employees are either used to settle the loans that are used by the company as the deduction are made from their salaries. The company repays the loan from the annual contributions made.
The leveraged ESOP or the corporate that sponsors get the finances from borrowing in banks or qualified financial institutions. The company borrowing gives the lender guarantee of meeting the contribution that can enable settling the debt in regard to the amortization schedule. It depends with the wish of the lending institution to decide whether the company to borrow directly or make direct ESOP loan back.
The company borrows fund to provide expansion capital or to improve to their operations. The company uses the borrowed amount to purchase the shares for itself stocks. The company gets to this extent as it aims in increasing the assets and development of the operations. In additional, the usefulness of the employee stock ownership stock plans acts as a motivational tool to the employees. It is extended to the company as it receives deductions in the tax for payment in interest and also in principal payment.
The deductions are hooked to the prices of stock during the ESOPs establishment. At the end of the analysis of the tax deduction and stock price increase, the capital structure becomes equivalent to the employees benefits. Finally, the dividend payment receives tax deduction hence used in settling the ESOP debt.