In trying economic times, many companies have been happy to stay afloat, let alone see revenue growth. But a study recently published from Georgetown University shows that S companies owned by their employees through employee stock ownership plans – ESOPs – seem to stand ahead of the pack when it comes to corporate resilience in tough times.
In the study, economists reviewed a cross-section of S Corporation ESOPs and found this structure was able to provide secure retirement funds, generate jobs and increase sales at a time when competitors struggled. For instance, S corporation ESOP structures increased contributions for employee benefits by 18.6 percent in 2008 while other U.S. companies increased retirement accounts by just 2.8 percent.
“Our results indicate the resilience of S -ESOP firms during the first year of the recession. S-ESOPs hired and grew their businesses when other firms were shrinking,” say the study’s authors. The business formation might not only be good for workers and business owners, but also for the overall economy.
Entrepreneurs considering business incorporation may consider forming an S corporation in light of these findings. In addition to outperforming other business types, S corporations also provide tax benefits – including exemption from certain profit taxes and the ability to use losses as tax deductions on shareholders’ personal income taxes.