Glossary of Terms on The Grid

Pertaining to unique EO considerations for businesses in Colorado such as tax or other incentives

Gradual reduction in the value of a fixed asset. Because depreciation happens to non-cash assets, like a vehicle or piece of machinery, it can be used as a tax write-off; that is, a person or company may reduce their taxable income by the amount of the depreciation on the asset.

Amortization is the gradual repayment of a debt over a period of time, such as monthly payments on a mortgage loan or credit card balance. To amortize a loan, your payments must be large enough to pay not only the interest that has accrued but also to reduce the principal you owe.

A private pass-through business that is owned wholly or partly by an ESOP, and as a result, the company’s gains rebound to the benefit of its employee-owners.

Fiduciary liability insurance protects an organization's fiduciaries (such as directors, officers, and trustees) against claims made by employees or other stakeholders for alleged breaches of fiduciary duty.

Junior capital defines any non-senior type of debt capital, including mezzanine debt or equity; it is at the risk capital level and generally not secured by assets, i.e., if the company does not achieve its goals the investor’s capital has a high degree of risk of loss.

Earnings in a regular corporation are double-taxed—the corporation pays income tax on the net earnings, and then the shareholders pay income tax when they receive dividends on those earnings. In contrast, under Subchapter T of the Internal Revenue Code, a cooperative can avoid some of the traditional corporate double-tax.

Any fees or dues required in order for a company to become EO, e.g., the cost of a formal 3rd party valuation.

The price the EO plan paid for the shares when first acquired, including it they were acquired with debt and then released later at higher or lower values. Four methods that can be used in computing the cost basis of the employers securities in the ESOP.

A corporation is a legal entity that is separate and distinct from its owners. Corporations possess many of the same rights and responsibilities as individuals. They can enter contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay taxes.

In a seller financed business sale, the seller allows the buyer to pay off a portion of the price of the business over time with interest.

Frequently asked questions about Zolidar, employee ownership, and business exit planning

The evaluation of different types of employee ownership by a selling owner, and making a choice between them based on the relative strengths and weaknesses of each type.

Pertaining to unique EO considerations for businesses in Washington state such as tax or other incentives

an arrangement in which the company that sells an asset can lease back that same asset from the purchaser

A US Government agency whose mission is to provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and to enforce the law with integrity and fairness to all.

A "poison pill" is a defensive strategy used by companies to deter hostile takeovers. It sets a trigger point, typically a threshold of stock ownership, beyond which any acquiring shareholder faces significant dilution of their stake.

The Perpetual Purpose Trust (PPT) is a non-charitable trust that is established for the benefit of a purpose rather than a person. An Employee Ownership Trust (EOT) is an example of a PPT.

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.

S corporations pass their income, losses, deductions, and credits to shareholders for federal tax purposes, allowing these amounts to be taxed at individual rates and avoiding double taxation.

Refers to the M&A practices of EO companies, e.g., ESOP companies purchasing other companies

The persistent difference in accumulated wealth between white households and households of color in the United States. Broadening who owns businesses, including through employee ownership, is often discussed as one way to help narrow it.

The degree of influence that second or third parties may have over a seller's ultimate decision to sell their business, for what price, on what terms, etc. When buyer autonomy meets seller autonomy the possibility of selling at a truly fair market value (FMV) is created.

Pertaining to unique EO considerations for businesses in Iowa such as tax or other incentives

An assessment of the required non-financial elements in selling a business, e.g., required people/talent, knowledge, partnerships, documentation, communication, etc., required for ongoing business success post-sale. Sometimes called the "people and process" aspect of feasibility.

A viewpoint of doubtfulness pertaining to one or more of the merits of becoming an EO company, typically net resulting in the viewpoint that EO is not a wise exit option.

Cost of capital is a calculation of the minimum return that would be necessary in order to justify undertaking a capital budgeting project, such as building a new factory. It is an evaluation of whether a projected decision can be justified by its cost.

When a plan is terminated, all participants become fully vested and distributions must begin as soon as administratively feasible, generally within a year of the plan's termination.

Wealth inequality is a global phenomenon in which the rich are growing richer, and the poor poorer.

Preferred stock represents ownership in a company with higher claims on dividends and asset distribution compared to common stock.