Your ESOP Questions Answered

 

Read ahead for videos and articles covering common employee ownership questions, including:

» What are the key benefits of on an ESOP?

» How are shares allocated and repurchased?

» Who makes decisions in an ESOP company?

Let's Clear Up Some Common ESOP Misconceptions

Employee stock ownership plans are complex financial transactions. As a result, there's plenty of confusion surrounding these benefit-rich programs.

Employee Ownership Essentials

Our founder, Larry Kaplan, explains the mechanics of an ESOP plan and walks you through the basic advantages and downsides of employee ownership in these brief videos.

 

 
 

ESOP Valuations, Financing & Governance

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Assessing Fair Market Value

The Internal Revenue Service defines FMV as the price a company would sell for on the open market. “It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.”

ESOP Multiples vs. Strategic Sales

An ESOP trustee has a fiduciary responsibility to pay fair market value for equity. If a strategic buyer believes the transaction offers unique synergistic benefits, that company may pay a premium that exceeds the FMV price. An ESOP’s tax advantages may help close or eliminate this gap.

Financing a Leveraged ESOP

Many commercial lenders are attracted to ESOPs. The associated tax incentives drive increased cash flow and employee-owned companies statistically outperform their peers. Senior debt, offered without personal guarantees, can often finance a sizable portion of a transaction.

A Trustee's Fiduciary Responsibility

ESOP trustees are obligated to pay fair market value for a company's equity, to manage the trust's assets, and to conduct annual, independent stock valuations. A trustee also maintains the trust in accordance with the ESOP's plan documents and votes the trust's shares.

Managing an Employee-Owned Company

If a company does not already have a board of directors in place, one will be established when an ESOP is formed. ESOP's trustee will have certain voting rights and take part in the election of a board's slate of members. The board maintains operational management of the company.