Professional Documents
Culture Documents
Dear
This will begin with introducing you to the strategy, and the
business elements to support it. Then we will perform a discovery
of your current landscape of structures and people, time frame for
getting started, your budget for consulting work. This will be
followed by an onsite visit to discuss with employees and
executives the practices set up and operational processes plus
current systems and technology in use. The on site visit helps us to
understand any gaps, problems and challenges, prioritize solving
them and as well as identify the projects, priorities, budget to build
prior to strategy implementation .
.
FLPSOP®
STRATEGIC COORDINATION OF
A FAMILY LIMITED PARTNERSHIP (FLP)
AND AN EMPLOYEE STOCK OWNERSHIP
PROGRAM (ESOP)
1990-2004 ESOT Resources, Inc. All rights reserved. FLPSOP® is a registered trademark of
ESOT Resources, Inc.
.
A TAX-ADVANTAGED STRATEGY AND
PLANNING TOOL FOR BUSINESS OWNERS
YOUR CHALLENGES
FLPSOP®
An ideal tool, the FLPSOP® solves these challenges by
creating a tax advantaged, controlled market for closely held
stock. The FLPSOP® allows you to remain in full control of
your company. 100% of all costs for shareholder liquidity are
tax deductible corporate expenses and 100% of the stock sale
proceeds can be tax deferred during your lifetime and
eventually eliminated.
3
.
A BUSINESS PURPOSE
C Corp
closely held
operating company
4
.
FLPS AND LLCS
ADD THE OPPORTUNITY FOR
POTENTIAL VALUATION DISCOUNTS
.
WEALTH PRESERVATION
CAPITALIZING
THE FAMILY LIMITED PARTNERSHIP (FLP)
Client creates the FLP , appointing a newly formed ‘Capital Management
Co’ as the General Partner of the FLP. The GP retains the control interest.
in the FLP.
The Client transfers existing assets, including their closely held stock to the
FLP in exchange taking back the minority interest – discounted FLP Units
PARTNERSHIP INTERESTS
• CONTROL INTEREST
FLP
• MINORITY INTERESTS – Marketable Securities
Minority interests may be eligible
Real Estate
for valuation discounts of 30%, 40%
or even 50% by a qualified
C Corporation stock
appraiser. Oil & Gas Interests
Discounts are for lack of Collectibles & Antiques
control and lack of marketability.
Valuation discounts increase tax-
free gifting and may decrease
estate and gift tax liabilities.
6
.
THE FAMILY LIMITED PARTNERSHIP (FLP)
FEATURES/BENEFITS:
• ASSET PROTECTION
An FLP is very effective in preventing seizure of assets by future
creditors. A creditor can not force liquidation of a partnership as a
means to collect on a judgment against a limited partner.
• VALUATION DISCOUNTS
The FLP enables valuation discounts of 30 to 50% for lack of
marketability and lack of control on the part of minority partners.
These valuation discounts can create potentially significant gift tax
and estate tax leverage.
• RETAINED CONTROL
The business owner retains operational control over the FLP via his
appointment as life time Managing Director of his FCM company.
This management company, in turn, serves as General Partner of
the FLP.
• INCOME SHIFTING
By gifting shares of FCM company to family members and if
if the management company is structured as an S Corp or LLC,
the business owner can shift FLP income to family members.
7
.
PARTNERSHIP DISTRIBUTIONS
C Corp
closely held
operating company
General Partner –
DETERMINES AMOUNT, Directs Business Affairs
TIMING AND FORM OF
DISTRIBUTIONS FROM FLP of Partnership
To FLP
Partners
via FCM CO
FLP in form of
salary.
Net Revenue
8
.
ESOP
EMPLOYEE STOCK OWNERSHIP PROGRAM
-Shareholder Liquidity; Tax-deductible funding for
.
THE ESOP ELEMENTS OF AN FLPSOP
10
.
ESTABLISHING THE ESOP
C Corp
closely held
operating company
ESOP shares
to participants
11
.
SHAREHOLDER EQUITY
ISSUES
C Corp PUT OPTIONS
closely held
TO ESOP SHARE-
2
operating company
HOLDERS
ESOP
FLP FLP SELLS
C CORP At least 30%of equity value
STOCK TO must be owned by ESOP
Marketable Securities THE ESOP before Section 1042 rollover
Real Estate BASED ON becomes available. Rollover
C Corporation stock – BUY/SELLA securities purchased here
control interest shares GREEMENT
Oil & Gas Interests TERMS
Collectibles & Antiques
12
.
EMPLOYEE STOCK OWNERSHIP PROGRAM
(ESOP)
13
.
IRC Section 1042 TAX DEFERRED ROLLOVER
14
.
1042 ROLLOVER
15
.
BUSINESS SUCCESSION
C Corp
closely held
operating company
IRREVOCABLE INSURANCE
TRUST
16
.
Partnership Entity
Administration
.
Partnership Structure
Example
Current/Future Vehicles
Minority Partners
Limited Partnership
Child Account 2
Real Estate
Partnership
Child Distributions
Limited Partnership
Account 3
Tax Liability Majority Interest FCM
Limited Partnership
Account 4
Valuation 1042 Rollover Securities
of
Majority Partner
Partnership
Family Capital Units (NAV) Limited Partnership
Management Co. Account 5
Investment Portfolio
Taxable
18
.
Inside the Partnership
Example
CUSTODY
EQUITY STYLES - % of portfolio
ALL CONTRIBUTIONS,
OPERATING ACCOUNT WITHDRAWAL, EXEPNSES
COME FROM HERE
ACCOUNT 4
ACCOUNT 5
EXPENSES
Custody, advisory or investment management fees comes from respective
manager sub account.
Miscellaneous expenses are allocated pro-rata across accounts.
19
.
Partnership Basis Tracking
(inside vs. outside basis)
INSIDE OUTSIDE
BASIS BASIS
• REAL ESTATE
• BUSINESS UNITS OF
INTEREST
PARTNERSHIP
• MARKETABLE COST BASIS
COST BASIS
SECURITIES OF FLP UNITS?
OF ASSETS IS THE
REMAINS STARTING
THE NAV EITHER
ACTUAL $1 OR $10
BASIS ARE COMMON
VALUE OF UNITS
CHOICES
VALUATION OF
PARTNERSHIP IS IS BASED ON NAV
MARKET VALUE OR OF
APPRAISED VALUES SECURITIES HELD
INSIDE THE FLP
20
.
Necessary
Supporting Services
.
Accounting Hub
• General Ledger
• Partnership Accounting
• Financial Accounting
• Investment Accounting
• Trust Accounting
22
.
General Ledger
23
.
Partnership Accounting
24
.
Master or Unitized
Custody Services
25
.
Income
Tax Returns
26
.