employee share ownership in SMEs, the ESOP is the simplest
and most effective plan in the world.
Here's how to do it:
1. You are the main shareholder of XYZ Company and you
want to sell your shares.
2. You create a "Foundation (or a trust) for Employee
Share Ownership and Pensions at Company XYZ".
3. You sell your shares to the foundation. For the payment,
you make credit to the foundation (or help it to obtain
credit or other financing).
4. The following year, as every year, XYZ company makes
a profit. This used to be taxed. But not anymore. The
company calculates and pays the foundation a pension
contribution equivalent to the profit before employee
shareholding. From then on, the profit has disappeared.
No profit, no tax.
5. The foundation receives the annual pension contribution.
It is a non-profit organisation, so it is not taxed
on its income. No tax there either.
6. The foundation creates an individual account for
each employee. This registers each employee's rights
to receive shares in Company XYZ when he or she leaves
the company (usually at retirement age).
In addition, the foundation organises a system for employee
shareholders to vote on items on the agenda of the annual
meeting of shareholders of company XYZ.
8. Each year, the foundation receives the supplementary
pension contribution of the employees who are members
of the plan. This contribution is first used to repay
the credit originally received to purchase the shares.
9. Then, the free shares are added each year in the
form of "entitlements" to each employee's
individual account, using a simple distribution key
(often pro rata to wages).
10. Thus employees exercise their rights as shareholders
and own the shares, except that they can only dispose
of (sell) them when they leave the company. They are
highly motivated to make everything work for the best.
In fact, it has been observed that companies with ESOP
plans work better than others.
An ESOP plan is as simple as that.