Employee Stock Ownership Plan (ESOP)

Employee Stock Ownership Plan (ESOP):-

ESOP stands for employee stock ownership plan which refers to such plans in which the company offers the shares to their employees as a reward or incentive for their performance or as a remuneration package. In other words we can say that it is a kind of benefit plan similar to profit sharing plan. In this plan, company sets up a trust fund in which either the company purchases new shares or give cash to purchase existing shares. The contributions done by the company to this trust fund are tax deductible, which gives an advantage to the company. There are several advantages for setting up an ESOP which helps the company to use this tool as a harvesting mechanism for their original owners. One of the uses of this ESOP is to buy the shares of the departing owner. The owners of the company use ESOP to commence a ready market for their shares. Another benefit from this plan is that the company can borrow money at a lower after cost. This could happen in such a way that the ESOP borrows money to buy new shares or existing shares of the owner, after that the company will pay the amount to repay the loan which will be tax deductible which results in the deduction for both the principal and the interest .In this way the company gets benefits by setting up ESOP.

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Partner VS Investor:-

Companies can generate their funds either by having a partner or investor. Both, the partner and investor have their own advantages and disadvantages. A company should choose one according to their needs and business. If a company wants to have a good talent as well as money for their company, so they might need to have a partner instead of investor because investor will give money but not his services to the company. If company wants to pay no interest on the funds they need to have, then also they should have a partner because investor will require a pre-determined interest decided on interest rate but a partner will have share in profits. So if the company has doubt that they might not receive good returns in future so they might have partner, which will be better for them as compare to have an investor.

Value added partner or value added investor are those individual who adds value to the business. In other words we can say that the business grows, get success when these individuals join the company. Due to these partners the profitability of the company also increases. So all these additional benefits which company gains after the joining of partner or investor make them value added partners or value added investor.

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