A sale to employees can provide an owner with significant tax breaks. Because of the IRC §1042 Capital Gains Rollover, business owners who sell at least 30% of the stock in their
C-Corporation to an employee-owned cooperative can roll over the proceeds from the sale into qualified replacement securities and defer payment of any capital gains tax indefinitely.
This report provides a detailed examination of the benefits received by departing employees of a company converted to 100% employee ownership either as an ESOP or a Co-op over a 15 year period. It also studies the net cash retained by the ESOP or Co-op firm over the same time-span. It discusss the some theoretical and practical implications related to the two forms of employee ownership.
This case study disccuses the 1042 rollover of Select Machines and the employee purchase of the company from its retiring owners. It compares and contrasts the creation of ESOPs with that of cooperatives using the 1042 rollover provision and provides an overview of a co-op business succession model