Situation
The owner of a mechanical contracting business sought to assure long-term financial security for her and her husband, make gifts to her children before her death, and ensure the company’s continued health.
Result
In exchange for most of her stock, the owner received an S distribution and a note on which she will receive regular principal and interest payments. The deal was also structured to include tax-advantaged warrants, which she gave to her children, only one of whom was involved in the business.
The new company leaders were issued stock options to provide incentive to succeed, and the owner retained oversight of the business through her position on the board. The remainder of the stock was sold to an ESOP. Because the ESOP is a tax-exempt retirement plan, no income tax will be due on the company’s earnings going forward.