Glossary of Terms on The Grid

Also called Collective Equity in a cooperative, Retained Earnings are the accumulated net income that has been retained for reinvestment in the business rather than being paid out in dividends to stockholders. Retained Earnings is a part of the equity section of a business’ balance sheet.

In accounting, anything of value that a person or business buys. Assets can be physical, such as real estate or stocks, or intangible, such as a claim on debts, such as accounts receivable or liens, or a right, such as a patent. Of crucial importance to assets is their relative liquidity, or the ease with which they can be converted to cash.

Testing for qualified retirement plans, e.g., ESOPs, pertaining to IRC Section 415 which limits the annual additions allocated to a participant’s account in all defined contribution plans to the lesser of 100% of the participant’s compensation or the statutory limit in effect for the calendar year in which the Plan year ends.

An F reorganization is defined in Internal Revenue Code Section 368(a)(1)(F) as a mere change of identity, form or place of organization of one corporation. In particular, this involves a tax-free reorganization of the target company (seller), which is typically an S corporation.

An optional rule in EO Plans that applies upon re-hiring an employee into an EO company; if they had not met the eligibility requirements during their previous period of employment, they would need to complete the break in service requirements in order to participate in the Plan.

Optimizing for the benefits of EO post-transaction in order to create and reify ownership culture with practices such as OBM

A startup company valued at over US$1 billion which is privately owned and not listed on a share market.

The combining of two EO Plans, such as what happens when an ESOP purchases another ESOP.

Refers to the costs associated with business sales, e.g., business broker fees with a 3rd party sale

The amount of money that cannot be clawed back after the transaction even if there are future problems.

Refers to the relative complexity of in different types of EO sales, e.g., ESOP vs EOT or worker co-op.

Assets that are free from any liens, debts, or other financial obligations.

A company’s value as recorded by its financial documents

To write off means to reduce value. Businesses will occasionally reduce the value of certain assets by writing them off, such as writing off unpaid and uncollectable invoices as bad debt. Taxpayers may also reduce their taxable income by writing off certain expenses.

The team of advisors who will help the selling owner to transition the business to its new owners.

An ESOP distribution policy articulates the timing, form, and method in which participants receive their account balance when they retire, leave the company, or become deceased.

Also known as the "death tax," a tax that's levied on a dead person's inherited assets. Ranges from rates of 18% to 40% and generally only applies to assets over $13.61 million in 2024. Thirteen states levy an estate tax. Thresholds can vary from state to state.

Compensation for key executives that attract, motivate, and retain the right people, while aligning executive goals with the goals of the company.

Overhead is an accounting term that refers to all ongoing business expenses not including or related to direct labor, direct materials or third-party expenses that are billed directly to customers. Also known as “indirect expenses” or “indirect costs”.

also known as a union, labor organization, or trade union, is a group of employees in a certain trade, industry, or corporation that organize to improve their salary, benefits, and working conditions.

Form 1099-PATR, Taxable Distributions Received From Cooperative, is a form sent to taxpayers to allow them to report distributions received from a cooperative.

Typically references to companies with less than $250 million in enterprise value

EO companies, and ESOPs in particular, have some reporting duties pertaining to the sponsoring company, e.g., financial statements containing the # of shares held by the ESOP, fair value of unearned shares, total of repurchase obligations, etc.

The departure of an executive and the recruitment, hiring, and installation of a new executive

Also called "worker owner," or "participant" (depending on the EO context), an employee owner is an owning participant in an employee owned business.

Typically a company's profit and loss (income statement), balance sheet, and statement of cash flows.

Patient, flexible, risk-tolerant money that accepts a lower or slower return to make a deal possible that ordinary market capital would pass on. It often fills the financing gap in an employee-ownership transition.

An invoice, bill, or tab is a commercial document issued by a seller to a buyer. The invoices documents the sale transaction and indicates the products, quantities, and agreed prices for products or services the seller provided.

A private company owned by two or more related family members.