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Kelso's Strategy for Income Redistribution

Kelso designed the fist ESOP by amending seven company-sponsored profit sharing plans to act as an ESOP-type financing vehicle. Owners of Peninsula Newspapers Incorporated accepted 20-year notes from the profit-sharing plans for the acquisition of their 72 percent stake in the company. Principal and interest payments were to be paid from annual tax deductible company contributions made to the profit-sharing plans. This is regarded as the first true ESOP because it embodied the core ESOP concept: productive assets can pay for themselves through the income those assets produce.

From this beginning, the ESOP became the focus of legislative efforts to create a system for such plans and the attendant regulations that would impact upon their implementation. This report will explore the legislative history that led to the enactment of Internal Revenue Code (IRS) 1042, establishing the ESOP as a financial vehicle for employers and a mechanism for acquiring ownership participation in a firm on the part of employees. The most common usage of ESOPs is the purchase of stock by employees from a closely held company. It is the intent of this report to explore the ways in which the initial legislation authorizing creation of an ESOP has been amended and modified over time, leading to the development of alternative strategies for the distribution of wealth and ownersh


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Kelso's Strategy for Income Redistribution. (1969, December 31). In Retrieved 18:05, October 25, 2014, from
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