How Company A Acquires Company B Using an ESOP

Leveraged ESOP- Seller Financed Technique

STEPS:

1. Company A establishes an ESOP.
2. Company B shareholder(s) exchanges the value of company B stock for company A newly issue stock.
3. Previous Company B shareholder sells his newly issued Company A stock to Company A's ESOP for a note from the ESOP.
4. Company A makes tax deductible contributions to the ESOP.
5. ESOP in turn pays down the note to the selling shareholder. Selling shareholder receives principal payments tax free.
6. Selling shareholder borrows from a bank to purchase Qualified Replacement Property (QRP) within 12 months of stock sale to qualify for income tax exempt stock sale.
7. Selling shareholder purchases Qualified Replacement Property (QRP) and thus he pays no capital gains on the stock sold.