An entrepreneur wants to transfer ownership of the business to her employees. She sets up an Employee Stock Ownership Trust which borrows money to buy shares of stock which will eventually be passed on to the employees. This type of transfer of ownership is known as
A) liabilities plan.
B) trusted plan.
C) noncompetitors plan.
D) earnings method plan.
E) leveraged plan.

Question

Quizplus · Accepted Answer

This transfer of ownership is known as a leveraged plan, where an Employee Stock Ownership Trust (ESOT) borrows money to purchase shares of stock from the owner. As the loan is repaid, the shares are transferred to the employees' retirement accounts within the ESOT. This is done to leverage the company's assets to buy out the owner's shares, creating a tax-advantaged way of transferring ownership to the employees.

An Entrepreneur Wants to Transfer Ownership of the Business to Her