What is ISO?

ISO originated from the union of two organisations the ISO (International Federation of the National Standardizing Associations) and the UNSCC (United Nations Standard Coordinating Committee). In 1946 over 25 countries met at the Institute of Civil Engineers in London to create a new international organisation, where the objective was to facilitate the international coordination and unification of industrial standards From this the new organisation ISO began operations in February 1947. The word ISO is derived from the Greek ISOS meaning equal. As the International Organization for Standardization would translate differently across different languages it was decided that the short form name for the organisation would be ISO. Today the ISO has grown to a confederation of delegates representing over 150 countries and has published over 16,500 international standards. They meet on a regular basis to further develop new and existing management standards.

Benefits of Certification
Each standard supports its own benefits within every industry, however the common benefits across the certifications include: widened market potential, compliance to procurement tenders, improved efficiency and cost savings, higher level of customer service, and therefore satisfaction, and heightened staff moral and motivation. By having a recognised management standard it tells your customers that you are serious about their needs.

Standards That We Can Certificate

Here are some of the standards that we can certificate: ISO 9001 is a quality management system, implementing a systematic and process driven approach to managing your business. ISO 14001 is an environmental management system for controlling the aspects of your business that have a significant impact on the environment. BS EN 15713 is a framework of key conditions to be adhered to for companies that destroy confidential information on behalf of their customers; the security of this information being integral to this. BS OHSAS 18001 is a health and safety management system for controlling and monitoring risks that can arise from the companys day to day activities. ISO 27001 is an information security management system for effectively manage risks to the security of your companys confidential information.

Fringe Benefits Fringe benefits are benefits received by an employee in addition to salary. Examples include - educational assistance, - moving expense reimbursement, - stock options, and dependent care assistance. Some fringe benefits (for example, accident and health benefits, and group-term life insurance (up to $50,000)) may be excluded from the employee's gross income and, therefore, are not subject to federal income tax.

How an Employee Stock Ownership Plan (ESOP) Works

Employee ownership can be accomplished in a variety of ways. Employees can buy stock directly, be given it as a bonus, can receive stock options, or obtain stock through a profit sharing plan. Some employees become owners through worker cooperatives where everyone has an equal vote. But by far the most common form of employee ownership in the U.S. is the ESOP, or employee stock ownership plan. Almost unknown until 1974, about 11,000 companies now have these plans, covering over 13 million employees. Companies can use ESOPs for a variety of purposes. Contrary to the impression one can get from media accounts, ESOPs are almost never used to save troubled companiesonly at most a handful of such plans are set up each year. Instead, ESOPs are most commonly used to provide a market for the shares of departing owners of successful closely held companies, to motivate and reward employees, or to take advantage of incentives to borrow money for acquiring new assets in pretax dollars. In almost every case, ESOPs are a contribution to the employee, not an employee purchase.

ESOP Rules
An ESOP is a kind of employee benefit plan, similar in some ways to a profit-sharing plan. In an ESOP, a company sets up a trust fund, into which it contributes new shares of its own stock or cash to buy existing shares. Alternatively, the ESOP can borrow money to buy new or existing shares, with the company making cash contributions to the plan to enable it to repay the loan. Regardless of how the plan acquires stock, company contributions to the trust are tax-deductible, within certain limits. Shares in the trust are allocated to individual employee accounts. Although there are some exceptions, generally all full-time employees over 21 participate in the plan. Allocations are made either on the basis of relative pay or some more equal formula. As employees accumulate seniority with the company, they acquire an increasing right to the shares in their account, a process known as vesting. Employees must be 100% vested within three to six years, depending on whether vesting is all at once (cliff vesting) or gradual. When employees leave the company, they receive their stock, which the company must buy back from them at its fair market value (unless there is a public market for the shares). Private companies must have an annual outside valuation to determine the price of their shares. In private companies, employees must be able to vote their allocated shares on major issues, such as closing or relocating, but the company can choose whether to pass through voting rights (such as for the board of directors) on other issues. In public companies, employees must be able to vote all issues.

Uses for ESOPs

1. To buy the shares of a departing owner: Owners of privately held companies can use an ESOP to create a ready market for their shares. Under this approach, the company can make taxdeductible cash contributions to the ESOP to buy out an owner's shares, or it can have the ESOP borrow money to buy the shares (see below). 2. To borrow money at a lower after-tax cost: ESOPs are unique among benefit plans in their ability to borrow money. The ESOP borrows cash, which it uses to buy company shares or shares of existing owners. The company then makes tax-deductible contributions to the ESOP to repay the loan, meaning both principal and interest are deductible. 3. To create an additional employee benefit: A company can simply issue new or treasury shares to an ESOP, deducting their value (for up to 25% of covered pay) from taxable income. Or a company can contribute cash, buying shares from existing public or private owners. In public companies, which account for about 5% of the plans and about 40% of the plan participants, ESOPs are often used in conjunction with employee savings plans. Rather than matching employee savings with cash, the company will match them with stock from an ESOP, often at a higher matching level.

Major Tax Benefits

ESOPs have a number of significant tax benefits, the most important of which are: 1. Contributions of stock are tax-deductible: That means companies can get a current cash flow advantage by issuing new shares or treasury shares to the ESOP, albeit this means existing owners will be diluted. 2. Cash contributions are deductible: A company can contribute cash on a discretionary basis year-to-year and take a tax deduction for it, whether the contribution is used to buy shares from current owners or to build up a cash reserve in the ESOP for future use. 3. Contributions used to repay a loan the ESOP takes out to buy company shares are taxdeductible:The ESOP can borrow money to buy existing shares, new shares, or treasury shares. Regardless of the use, the contributions are deductible, meaning ESOP financing is done in pretax dollars. 4. Sellers in a C corporation can get a tax deferral: In C corporations, once the ESOP owns 30% of all the shares in the company, the seller can reinvest the proceeds of the sale in other securities and defer any tax on the gain. 5. In S corporations, the percentage of ownership held by the ESOP is not subject to income tax at the federal level (and usually the state level as well): That means, for instance, that there is no income tax on 30% of the profits of an S corporation with an ESOP holding 30% of the stock, and no income tax at all on the profits of an S corporation wholly owned by its ESOP. Note, however, that the ESOP still must get a pro-rata share of any distributions the company makes to owners. 6. Dividends are tax-deductible: Reasonable dividends used to repay an ESOP loan, passed through to employees, or reinvested by employees in company stock are tax-deductible. 7. Employees pay no tax on the contributions to the ESOP, only the distribution of their accounts, and then at potentially favorable rates: The employees can roll over their distributions in an IRA or other retirement plan or pay current tax on the distribution, with any gains accumulated over time taxed as capital gains. The income tax portion of the distributions, however, is subject to a 10% penalty if made before normal retirement age. Note that all contribution limits are subject to certain limitations, although these rarely pose a problem for companies.

Caveats

As attractive as these tax benefits are, however, there are limits and drawbacks. The law does not allow ESOPs to be used in partnerships and most professional corporations. ESOPs can be used in S corporations, but do not qualify for the rollover treatment discussed above and have lower contribution limits. Private companies must repurchase shares of departing employees, and this can become a major expense. The cost of setting up an ESOP is also substantialperhaps $40,000 for the simplest of plans in small companies and on up from there. Any time new shares are issued, the stock of existing owners is diluted. That dilution must be weighed against the tax and motivation benefits an ESOP can provide. Finally, ESOPs will improve corporate performance only if combined with opportunities for employees to participate in decisions affecting their work. For a book-length orientation to how ESOPs work, see Understanding ESOPs.

For more detailed articles on these subjects, click here.

WhatisanESOP?
ESOP Definition: ESOP is an acronym that stands for Employee Stock Ownership Plan.
Technically, the Plan is operated or administered pursuant to a tax-exempt Trust, referred to as ESOT, Employee Stock Ownership Trust. Accordingly, the Plan is alternatively referred to as the ESOP or the ESOT. The purpose of an ESOP is to enable employees to acquire beneficial ownership in their Company without having to invest their own money. The Plan is also a tax-exempt entity for Federal and state corporate income tax purposes. This enables the Company to make cash and/or Company stock contributions to the Trust, which are used to acquire stock of the Company on behalf of its employees. The advantage of the ESOP is that employees are able to acquire this stock without paying a current income tax on the stock. Again, this results from the fact that the contribution is made entirely by the Company and is not taxed to employees personally as it is allocated. The advantage to the Company is that the ESOP makes pre-tax dollars available to finance Company growth and/or to create ownership liquidity at the time of retirement. Because employees are not taxed currently on the stock which is acquired for their benefit, they are able to acquire up to twice the amount of stock which they could acquire if a Trust arrangement were not used. That is, if shares of stock were issued to an employee by the Company, that employee would be taxed currently on the value of those shares. Also, if an employee buys stock directly from the Company or other shareholders, that employee is using after-tax funds rather than pre-tax dollars. The use of a Trust eliminates this tax problem since the Trust is not taxable and frees employees from income tax liability until the shares are distributed.

Click here to read the definition of an ESOP as defined by the National Center for Employee Ownership [back to top]

WhataretheTaxandFinancialAdvantagesofanESOP?
The ESOP enjoys a number of tax and financial advantages not enjoyed by other types of buyout alternatives, including the following:

1.

Under Section 1042 of the Internal Revenue Code, if the ESOP acquires 30% or more of the outstanding stock of a privately-held company, any capital gains tax on the transaction is deferred indefinitely, provided that the seller reinvests the proceeds in qualified replacement property within 12 months of the date of sale.

2. 3. 4.

Unlike a sale or merger, the ESOP enables the seller to sell any portion of his or her stock. A sale or merger usually requires the seller to sell 100% control. The ESOP enables the company to repay principal with tax-deductible dollars. Dividends paid on stock held by an ESOP are fully tax-deductible, provided that such dividends are either passed through to participants or are used to make principal or interest payments on an ESOP loan.

5.

In the case of an S corporation, the ESOPs share of S corporation earnings is not subject to federal or state* corporate taxation or to taxation as unrelated business income tax, unless the ESOP runs afoul of certain anti-abuse provisions. Thus, in the case of an S corporation that is 100% owned by its ESOP, the companys earnings will be entirely tax-exempt.

6. 7.

An ESOP enables an owner to keep control until he is ready to fully retire. When the owner does retire, the ESOP enables the owner to pass control to his key employees. An ESOP enables an owner to provide for business continuity for the business that he has grown and nurtured over many years. Unlike a sale or merger, an ESOP enables a company to retain its separate identity rather than become a branch or division of a larger company.

8. 9. 10.

An ESOP enables a company to attract, retain and motivate key employees. Studies have shown that ESOP-owned companies become more productive and profitable than comparable firms in the same industry that are not ESOP-owned. An ESOP can be used to enable a company to make acquisitions of other companies with tax-deductible dollars. In addition, by using an ESOP the sellers can receive their proceeds tax-free under the provisions of Section 1042 of the Code. *However, there are one or two states that arguably do not follow federal law with respect to the tax treatment of S corporation distributions received by an ESOP.

[back to top]

WhyShouldYourCompanyAdoptanESOP?
The following advantages are material to the adoption of the Plan. 1. 2. 3. The ESOP will enable the Company to buy out the current owners, using tax-deductible Company contributions. The ESOP will enable the employees to share in the current and future economic rewards of ownership. An ESOP will be a better incentive plan for employees than other alternatives. The flexibility of the ESOP to not only invest in the stock of its own Company but to diversify its investments over a broad range of opportunities makes it a valuable retirement asset.

Click Here to Read More About Why You Should Consider an ESOP? [back to top]

WhatistheTechnicalHistoryofESOPs?
The term Employee Stock Ownership Plan was first defined by Federal legislation in the Employee Retirement Income Security Act of 1974. Thus, in a sense, the ESOP is a relatively new form of plan which has existed only since September 2, 1974 when ERISA was enacted into law. In the Tax Act of 1978, ESOPs are defined as . . . a technique of Corporate Finance. . . Thus their purpose of benefiting both employees and the Company has been clearly defined by Congress. From 1974 through 1989, it has been estimated that 12,000 companies have installed Employee Stock Ownership Plans. This brings the total number of employees covered by ESOPs to more than 11,000,000. However, many ESOPs existed prior to 1974, even though such plans were not defined by Federal statute. Employee Stock Ownership Plans were first recognized by the Internal Revenue Service in 1952 and 1974. Although technically only in existence since 1952, the concept of Employee Stock Ownership Plans has been in the law since 1921 in the form of Stock Bonus Plans. Stock Bonus Plans, like Employee Stock Ownership Plans, are tax-exempt trusts which are designed to enable employees to own part or all of the company for which they work, without investing their own funds. The distinguishing feature of an ESOP is that an ESOP, unlike a Stock Bonus Plan, may engage in leveraged purchases of company stock. That is, an ESOP may acquire stock not only on a year-by-year basis, but also may borrow funds in order to purchase a block of stock.

[back to top]

WhatisthePhilosophyoftheESOP
A.BroadenOwnershipofCapital
The ESOP is sometimes referred to as the Industrial Homestead Act. ESOP legislation, like the original Homestead Act, is designed to broaden the ownership of capital by employees. The Homestead Act had an enormous impact upon the growth and success of the American economy. During the first half of the twentieth century, land represented the major source of wealth in the American Economy. Land represented an underdeveloped capital resource, which needed the elements of labor and tools in order to make it productive. In order to encourage the further development of this natural resource, the Homestead Act provided that any person could homestead up to 160 acres per person. The law provided that any person who took possession of the land and assumed responsibility for making it productive for a certain period of years would acquire full ownership of this land at the end of that time. As a result of this legislation, hundreds of thousands of people were able to acquire capital and to become financially independent. During the past thirty years, however, the nature of the economy has shifted from an agricultural economy to an industrial economy. As a consequence, the source of wealth has shifted from ownership of land to ownership of corporate stock. The Employee Stock Ownership Plan, like the

Homestead Act, is designed to enable employees to benefit from the ownership of capital through the investment of their talent and energy.

B. Create Financial Security

The second goal of Employee Stock Ownership plans is to create a source of income which can be used to supplement Social Security and other retirement plans. Sound financial planning requires that every person make some financial plans for the future. Financial need can arise in the future due to retirement, disability, or increased cost of living. In order to adequately provide for these financial hardships, each person should attempt to accumulate a nest egg or financial reserve which can be used to meet these needs. For most employees, saving money from after-tax dollars is virtually impossible, due to the increasing burden of inflation and of Federal and state income taxes. An ESOP can provide a capital accumulation for each employee in addition to his or her normal salary. Because this capital accumulation is not taxed at the time of contribution, this capital amount can accumulate at a faster rate than if it were taxed each year as it is contributed to the plan. In addition, the advantage of stock ownership is that stock investments have the potential for appreciation and for capital gains which savings accounts and other forms of fixed income investments do not possess. To the extent that the ESOP is invested in the stock of the Company, employees will have a direct influence on its value by their work performance. In a nutshell, it is generally easier to create a nest egg by means of investments than it is to create a nest egg out of annual wages.

C.CreateBetterIncentivesandUrgeBetterEmployeeProductivity.
The third goal of Employee Stock Ownership Plans is to encourage and reward increased employee productivity and efficiency. Increased employee productivity and efficiency is one of the largest variables in the overall profitability of any company. In many instances, a 5% or 10% increase in individual employee productivity may result in increasing company profitability by 50% or more. The goal of the ESOP is to reward employees for their efforts so that they automatically share in the growth of the company. The ESOP creates a direct link between employee productivity and employee benefits.

[back to top]