How Long Does It Take to Set up an ESOP?

How long does it take to set up a leveraged ESOP?

Typically, the set-up process takes 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 all privately held firms and, in some transactions, publicly traded companies. A feasibility assessment must be done, even if just one done in-house. These numbers can help form a presentation to lenders, who need to make the final decision, draw up the appropriate documents, and get necessary legal and financial opinions. Also, Plan documents must be drawn up and a trust agreement created. The length of time all this will take depends on how busy the various practitioners are, how quickly company people make decisions, how readily available good company information is, and how difficult it is to convince a lender. As in all ESOPs, a repurchase obligation study should be performed, although this is not a requirement to put the plan in place, and it can be done after the transaction (although it is better to do it before and use its results as part of plan design).

Aside from these factors, additional delays will be encountered if equity investors are needed. It will take time to find them, develop models for pricing their investment, and, in some cases, arrange their investments. These complex transactions often require a fairness opinion (this assesses the relative pricing of different investments in the transactions and/or the fairness of the transaction to plan participants) and solvency opinions (an opinion to the lender that the company can repay the debt and remain solvent). If there are employee concessions or new labor negotiations needed, this too will add to the time needed. In public companies, some ESOPs may require additional filings with the SEC or the stock exchange on which the company is listed.


How long does it take to set up a non-leveraged ESOP?

Non-leveraged ESOPs can usually be set up fairly quickly. They need only plan and trust documents to be drawn up and a valuation to be performed. The comments on repurchase studies in the question “How long does it take to set up a leveraged ESOP?” apply here as well.


How long does it take to set up a stock options program?

This can be done very quickly if practitioners can schedule it. The same concerns about valuation that apply to 401(k) plans, however, also apply here. As in any plan, hasty designs often are poor ones, so it makes sense to take enough time to think things through carefully.

Source: National Center for Employee Ownership (NCEO)

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