Employee Stock Ownership Plans

Employee Stock Ownership Plans (ESOPs), which are Qualified Plans under the Employees Retirement Income Securities Act of 1974 (ERISA), are regulated by the U.S. Department of Labor (DOL) and Internal Revenue Service (IRS). ESOPs often involve complex corporate structures and valuation nuances not applicable to other types of entities. Successful implementation of an ESOP and achieving the desired benefits depend on employing a team of qualified professionals with extensive experience and knowledge regarding ESOP transactions and maintenance. BVA Group has over 40 years of experience providing valuation and financial advisory services to fiduciaries of ESOPs. Our knowledge and experience encompass a broad range of industries, and our ESOP clients’ businesses range in size from a few million dollars to several hundred million dollars in annual revenue.

Our valuation and advisory services for ESOPs include:

  • Feasibility valuation studies
  • Transaction fairness opinions and solvency opinions
  • Annual update valuations
  • Advising trustees in the sale of an ESOP-owned company
  • Structuring and negotiating transactions for ESOPs

ESOPs provide unique corporate finance and tax opportunities due primarily to two distinctive features as a retirement plan. First, an ESOP is required to invest primarily in the sponsoring company's securities. Second, an ESOP can borrow funds backed by the credit of the sponsoring company in order to purchase shares.

Employee stock ownership plans allow owners of closely held companies to transition ownership to employees in a tax-efficient manner. Potential tax benefits (assuming proper transaction structure and implementation) include:

  • Deferral of capital gains tax for the selling shareholder(s)
  • Tax deductibility of principal and interest of the ESOP transaction note
  • No federal income tax on S-corporation stock owned 100 percent by an ESOP

Other possible benefits of an employee stock ownership plan include:

  • Enhanced liquidity and diversification for the selling shareholder(s)
  • Facilitation of business succession and/or estate planning
  • Cost-effective employee benefit