ESOP Blog

What does the term “due diligence” mean? Due diligence essentially is the process of investigating if there are any potential problems that could make a transaction problematic. Generally, the buying party (such as the ESOP trustee) requires due diligence work to uncover potential problems in the company whose stock is being bought. Examples of difficulties…

How long does it take to set up a leveraged ESOP? Typically, the set-up process taxes anywhere from six to nine months. We have heard of plans being set up in several weeks; some take as long as two years. Several steps are necessary to set up a plan. First, a valuation is needed for…

The cost of setting up an ESOP varies considerably, and costs can range from $60,000 to hundreds of thousands of dollars (in 2015). There are several issues to consider: Attorney fees: The basic design of the plan itself – filing initial forms with the government, negotiating with lenders, performing due diligence, drawing up trust documents,…

Just about every ESOP company wants to have employees who think and act like the employee-owners. Compelling research and decades of experience show that employee ownership is in fact a powerful tool to improve corporate performance – but only when companies have “ownership cultures” in which employees think and act like owners. There is a…

In Lee v. Argent Trust Company, the district court dismissed the Plaintiff’s claim that Argent, as trustee of the Choate Construction Company ESOP, committed a fiduciary breach when it paid $198 million for the purchase of 100% of the company’s stock. The Plaintiff had alleged that she suffered damages because the ESOP’s stock was valued…

ESOPs have several significant tax benefits, the most important of which are: 1. Contributions of stock are tax deductible: That means companies can get a current cash flow advantage by issuing new shares or treasury shares to the ESOP, although this means existing owners will be diluted. 2. Cash contributions are deductible: A company can…

ESOPs 401(k) Plans Contribution rate from company to the plan 6% to 8% of pay per year for all eligible employees. 4% of pay of those eligible employees making deferrals per year (about two-thirds to three-quarters of eligible employees defer into the plan). Rate of return Department of Labor data indicate ESOPs had a 9.1%…

Many people do not know what an ESOP is, let alone what one is used for, and the ways ESOPs can benefit employees. The following is summary of how ESOPs are used. To buy the shares of a departing owner: Owners of privately held companies can use an ESOP to create a ready market for…

Infographic by National Center for Employee Ownership (NCEO) from What Is an ESOP?

In most cases, the trustee is the fiduciary, but the two functions are not necessarily the same. Plans must designate who the fiduciary is; they can designate this for all issues or have different fiduciaries for particular issues. A fiduciary is anyone who makes decisions about plan operations, including its management or the disposition of…