SES ESOP Strategies uses a feasibility assessment and transaction analysis to help you determine whether an ESOP is an appropriate fit for your company and if so, how to set up an ESOP to best suit your goals. Once you have decided to implement an ESOP, our multidisciplinary team will provide comprehensive services and support to guide you through the design, implementation and ultimately, the maintenance of a successful ESOP.
The process of designing and implementing your ESOP includes a number of critical steps:
Designing the Plan
Like other qualified employee benefit plans, ESOPs must comply with applicable laws, including ERISA. Because ESOP sponsors have many choices to make in designing plans that will work within their companies, it is advisable to work with experienced ESOP counsel in designing the ESOP. Within the specified legal rules, plan sponsors must make important decisions regarding the plan terms to make sure the ESOP fits with the company’s cash flow needs, strategic goals and corporate culture. Legal counsel provided through our affiliated law firm, Stevens & Lee, can assist plan sponsors in preparing the required ESOP plan documents, including the agreement with the ESOP trustee.
Choosing an ESOP Financing Structure
Non-leveraged ESOPs: In this type of ESOP, there is no borrowing of funds to acquire stock. Instead, the ESOP is funded by contributions of cash or stock directly from the company. Using this type of ESOP structure will avoid any impact debt would make on the company’s balance sheet.
Leveraged ESOPs: In this type of ESOP, the ESOP borrows money to buy stock from a selling shareholder or owner (or sometimes newly issued shares from the company). Shares are placed in an unallocated account and are slowly released and allocated to participant accounts as the loan is repaid. Since the ESOP loan is being repaid via contribution from the company, the borrowed money is fully tax deductible.
An ESOP is the only kind of employee benefit plan structure that can use the credit of the company and its shareholders to finance the purchase of company stock. Your company may expect to complete a transaction where the ESOP borrows money (a leveraged ESOP transaction). A leveraged ESOP transaction requires compliance with certain legal requirements. In addition, the company may need advice about how best to obtain the necessary financing for the transaction, whether from the seller or from an outside lender. If applicable, Griffin Financial Group, our affiliated investment bank, can help raise the debt necessary to fund the transaction and all or a portion of the company’s future working capital and other needs.
Structuring an Effective Transaction, or “How to Set Up an ESOP”
Once you have decided to implement an ownership transition using an ESOP, SES ESOP Strategies can help you structure a transaction that will best meet the goals of the company and the selling shareholders. The structure of the ESOP transaction should be customized to meet the needs of company and its selling shareholders, as well as any other stakeholders.
SES ESOP Strategies professionals are knowledgeable about all aspects of the ESOP transaction, including the parties involved, the timing and the steps.