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Employee Stock Ownership Plans (ESOPs)

Corporate & Securities

Employee Stock Ownership Plans (ESOPs)

As ESOPs have become an increasingly attractive means of transferring ownership in a business and financing business needs, Wyatt has become a proven leader in advising clients in ESOP matters.  We work with clients in all aspects of ESOP transactions and ongoing ESOP operations.

Surveys indicate that many small and middle market business owners want to retire, but have no well-defined "exit strategy."  If you lack the option of selling to family members, management, another company or a private equity group, an ESOP may be your solution.

If exit planning is not your current priority, many businesses have taken advantage of another powerful aspect of ESOPs as a means to generate much-needed capital in a highly tax-advantaged way.  Essentially, ESOP-based financing provides a way to deduct not only a company's interest cost, but its principal payments as well.  It's a significant cash flow savings.  Although there are costs, in the current lending environment, an ESOP can be the edge that enables your bank to make the loan that is a part of the ESOP-based structure.

Wyatt is the right choice for you in an ESOP matter, and here's why:

We've seen it from nearly every angle.
We advise a wide range of clients through all phases of ESOP feasibility, design, financing, documentation, implementation and administration.  Our clients include sponsoring companies, selling shareholders, financial institutions, independent and internal fiduciaries and others.  We help business owners monetize the years of value they have built into their businesses in a manner that is tax-efficient and, where indicated, preserves the proceeds for the benefit of family and heirs.  We also assist companies in corporate finance transactions which use the powerful cash flow advantage that ESOPs can provide.

In addition, our long history of representing banks in a wide variety of matters positions Wyatt to understand well the needs of banks when lending to ESOPs.  It's a highly technical field in which our experience with leveraged ESOP transactions has proven valuable to our bank clients.

Enjoy the benefits of an experienced team of attorneys.
With our experience in employee benefits, ERISA, tax, mergers and acquisitions, business planning, estate planning and other relevant areas, we approach ESOP projects with a well-rounded understanding of the wide scope of objectives, issues, challenges - and rewards - inherent in ESOPs.  Our ESOP Practice Group members participate in the following ESOP-focused professional organizations:

  • The ESOP Association
  • The National Center for Employee Ownership
  • The ABA Joint Committee on Employee Benefits
  • The ABA Labor Law Section Employee Benefits Committee (Former Co-Chair, Subcommittee on ERISA Reporting and Disclosure)
  • The ABA Taxation Section Employee Benefits Committee

We find solutions that work for you.
Our ESOP team knows that the best counsel starts with understanding what drives your business and your goals.  You can rest assured that we've confronted issues similar to yours, and our experience guides our practice.  Wyatt's representative ESOP transactions include:

  • Representing a manufacturing company that had been a family business for four generations in a leveraged buyout through an ESOP. The matter included representation with respect to a stock sale to the ESOP; financed through a multi-million dollar senior loan facility; a multi-million dollar mezzanine loan facility with warrants; advice on specific ESOP matters, including S-corporation compliance with Internal Revenue Code § 409(p); and negotiation and preparation of employment agreements, including a non-qualified deferred compensation and stock appreciation rights for the management team.
  • Representing a $70+ million (enterprise value), family business in a multi-dimensional, partial sale to a ESOP sponsored by a spin-off corporation within the group of family businesses; transaction internally-financed via a family trust.
  • Representing a large regional bank in making leveraged ESOP acquisition loans aggregating approximately $13 million and $46.5 million to two ESOP-owned companies.
  • Representing a nationwide bank in connection with leveraged ESOP financing provided to a regional construction firm and an insurance business.
  • Representing one of the largest ESOPs in the United States - over 16,000 employees - in numerous M&A transactions over the last decade. 
  • Representing three related ESOPs and three related individual plans in a significant enforcement action initiated by the U.S. Department of Labor against the plan sponsors and their principals.

Other client issues that we have handled:

  • Use of ESOPs in business ownership transition and succession
    • Tax-deferred rollover transactions (IRC § 1042)
    • Elimination/reduction of estate taxes
    • Elimination/reduction of federal income taxes at both the corporate and shareholder levels
  • Use of ESOPs for corporate finance purposes
    • Borrowings at reduced after-tax cost
    • Refinancing existing debt
  • Independent trustee/fiduciary representation (transactional)
  • ESOP administration issues
    • Plan design, development and implementation
      • Financing arrangements (leveraged transactions)
      • Plan communications (Summary Plan Descriptions)
      • Repurchase liability considerations
    • IRS tax qualification, including the use of the Employee Plans Compliance Resolution System (ECPRS) to correct plan errors
    • Corporate governance "best practices" in ESOP-owned companies
    • ESOP diversification and distribution requirements
    • Plan termination