The One-Stop ESOP Blog

Many business owners may wonder, “What is an employee stock ownership plan (ESOP)?” This a common question from business owners seeking business succession plans as a method for liquidating their equity in the business while maintaining the culture and values of the company they built during their working years.

Part One of our Roles and Responsibilities of an ESOP Plan Trustee highlighted the requirements for an ESOP Plan Trustee according to Title 29 of U.S. Code Section 1104(a) and IRS Section 401(a)(28)(c).

In part one of our two-part series on the roles and responsibilities of an ESOP Plan Trustee, we will discuss the overall responsibilities of the Plan Trustee including engaging an independent ESOP appraiser.

Last month, Republican Senator Steve Daines from Montana cosponsored the bill in the Senate titled S. 1589 – Promotion and Expansion of Private Employee Ownership Act of 2017. The pending bill was initially sponsored in the Senate by Republican Pat Roberts from Kansas last year on July 19^th.

I am honored to be presenting on Struggling with How to Make an Impactful ESOP Committee on Thursday, March 8^th, at 1:05 pm in Appleton, WI as part of the ESOP Association Wisconsin Chapter 2018 Spring Conference & Roundtables  being held at Lawrence University.

What is the ESOP repurchase liability?

The ESOP repurchase obligation or liability is the company’s obligation to buy back shares from ESOP participants according to the company’s ESOP document and ESOP Distribution Policy. The ESOP repurchase obligation helps with planning for cash requirements and how to meet bank (or seller) requirements for leveraged ESOPs.

We have reviewed methods for transitioning your business compared to selling to an Employee Stock Ownership Plan (ESOP). One of the arguments against ESOPs is the perceived lack of diversification, because all the participants’ investments are in company stock. The National Center for Employee Ownership (NCEO) has done a great job of addressing this myth by showcasing how employee ownership can create jobs, strengthen the economy, and develop companies, illustrated in this infographic.

The landscape in today’s job market for hiring companies is difficult, especially with the unemployment rate at 4.1% for the past three months, according to the Bureau of Labor Statistics. Unemployment rates are at the lowest since 2000. Employers continue to need top talent to grow operations. This was evident with December’s jobs report indicating, once again, that we added jobs, another 148,000 to be exact. Companies have added 2.1 million employees in 2017 and 2.2 million employees in 2016, so it doesn’t appear to be slowing down anytime soon. 

In the initial start-up phase of your company, your personal and professional goals were aligned. Now, as you consider the next season of life away from your business, you must start researching your options for transitioning your business. In parts one and two of New Year, New Ownership Plan, I reviewed, at a high level, some of the advantages and disadvantages of selling to an ESOP or a private equity firm. In part 3, I will provide some insight on the advantages and disadvantages of selling to a third-party. When transitioning your business, you are faced with one basic question: Do you sell the business to an internal (employees or family members) or external (private equity or third-party) party? It is very important that you research each option and find the one that aligns with your vision for the future.

In part one of New Year, New Ownership Plan, I reviewed, at a high level, the benefits associated with transitioning your business to an Employee Stock Ownership Plan. As I mentioned in the previous blog article, this is not the only option you have as a business owner. Another option could be selling to a private equity firm. I would like to highlight the advantages and disadvantages associated with this option.