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An Employee Stock Ownership Plan (ESOP) is a type of qualified employee benefit plan, similar to a pension or profit sharing plan. The major differences are that it is designed to be invested in the employer's stock and it may borrow in order to buy that stock.
The successful design and implementation of an ESOP requires a unique blend of legal disciplines
that are not generally demanded in a single project. Expertise in employee benefits, corporate,
financing, securities and tax law are all necessary parts of the team. Our attorneys have substantial
experience in each of the legal disciplines that are involved in the various types of ESOP
transactions, from the simplest to the most complex.
We provide value to you by following these simple principles:
Outstanding technical expertise
While we are always current on developments in the law applicable to ESOPs, we also have extensive involvement in the ESOP community and professional organizations.
Focusing on your goals
By looking at the ultimate objective, we find the proper legal solutions that will best achieve a practical result at the lowest cost to you.
Creative problem solving
Based on our experience, we constantly look for ways to apply a variety of legal principles to solve your problem in a cost-effective manner.
Our ESOP attorneys have a broad range of professional backgrounds. This breadth of experience lets us approach your problems from a comprehensive, well-integrated perspective. To support the
interests of ESOP companies, our ESOP attorneys are active in professional organizations which focus on issues affecting ESOPs, are widely recognized as experts in their field and regularly speak
to various professional groups and write articles on current ESOP topics.
Companies throughout the country have relied on us to help them establish their ESOPs. Our ESOP clients are primarily small and middle-market privately held companies with revenues
of $5 million to $200 million. They include corporations involved with manufacturing, services, retail and distribution. We also represent corporate fiduciaries, lenders and plan administrators with
respect to the various aspects of an ESOP in which they become involved.
The ESOP Advantage
Typically, an ESOP is leveraged, i.e., it borrows the funds to buy the stock. The financing is based on the credit of the company and any other available source. The company makes tax-deductible contributions to the ESOP and the ESOP repays the loan. An ESOP can be used to accomplish
numerous corporate and personal objectives:
- An ESOP can be a market for the stock of closely held corporations, allowing a sole shareholder to sell a portion of his shares without losing control.
- An ESOP can be used to buy out one or more shareholders in connection with ownership succession planning.
- An ESOP can provide tax advantages: If the ESOP acquires 30% or more of the company's stock and the sales proceeds are re-invested in U.S. corporate stocks or bonds, the selling shareholder is not taxed on the gain.
- The loan is repaid out of the pre-tax income of the company.
- An ESOP can provide pre-tax corporate financing for capital expansions and the purchase of plant and equipment.
- The creative use of an ESOP in making corporate acquisitions can both reduce the cost of the acquisition and permit payment of the purchase price out of pre-tax corporate income.
- An ESOP gives employees an ownership interest in the Company and provides a motivational basis for improving employee loyalty and profitability.
ESOP Services
Our ESOP practice covers a broad range of ESOP-related services. For example, we advise clients regarding stock purchases, corporate succession planning, leveraged
buyouts, corporate financings, mergers and acquisitions, hostile takeover defenses and a variety of other related types of situations. Depending on your needs, our services could include any one or
more of the following:
- Advise you about whether and how an ESOP will solve a problem or achieve an objective.
- Design the ESOP and the ESOP transaction and coordinate the related corporate and financial issues.
- Advise the parties as to the tax aspects of the ESOP transaction, including any estate planning, tax and personal wealth planning that may be necessary.
- Prepare the ESOP documents and related employee communication materials and submit them to the IRS for a determination letter.
- Review bank loan documents and assist, as appropriate, in designing and obtaining financing for the transaction.
- Advise you regarding any corporate restructuring that may be [[advisable]] or necessary and, as appropriate, prepare any corporate documents and other agreements that may be required.
- Prepare the ESOP transaction documents, such as stock purchase agreements, loan agreements, pledge agreements, resolutions and the like.
- Coordinate the activities of your other advisors and the ESOP professionals, such as the stock appraiser and plan administrator.
- Advise ESOP companies and their other advisors regarding operational issues affecting the ESOP, including coordination with other plans of the employer, dealing with employee relations issues which center around the ESOP and avoidance of plan qualification pitfalls.
- Represent ESOP companies in audits by the IRS and DOL, including qualification issues and settlements under the IRS Voluntary Compliance Resolution (VCR) and Closing Agreement Program (CAP).
- Represent employers, fiduciaries and service providers in litigation involving ESOPs. The depth of our ESOP practice permits us to have an experienced ESOP litigation attorney work side-by-side with an experienced non-litigation ESOP attorney.
- Serve as expert witnesses in ESOP litigation.
For more information about the services of our ESOP practice, please contact INFO-RR@reish.com or phone (310) 478-5656.
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