ESOPs, employee stock ownership plans, serve as useful financing and acquisition tools in addition to the tax and employee benefits they provide. Creating and implementing an ESOP can be a challenge because they are often unfamiliar to many companies.
At Hunton Andrews Kurth LLP, we have the experience and the resources to apply innovative ideas and methods that deliver success for clients. We seek to create solutions that meet your business goals and connect you with strategic partners in the ESOP community (e.g., ESOP lenders, ESOP valuation firms, ESOP trustees). Most importantly, we get to know your business and understand your goals and the nature of your ESOP challenges in order to gain a perspective that makes creative solutions possible.
The extent of our ESOP experience and the range of our global resources provide you a wide focus on the options and solutions to address your needs. Due to the complexity and demanding nature of transactions, and regulatory issues in the ESOP area, the global Hunton Andrews Kurth transactional ESOP practice is comprised of lawyers with various focuses, such as:
In addition, because bank holding companies and banks comprise such a large portion of ESOP-owned companies, we incorporate the knowledge and experience of our financial institutions corporate and regulatory practice group. Together, we work as a team for our clients, drawing on our experience in various areas of law and business, as well as our experience with ESOP transactions. We use the considerable strength of the practice to design comprehensive solutions.
The Hunton Andrews Kurth transactional ESOP practice has represented the various parties involved in complex ESOP transactions, including fiduciaries, corporations, lenders, selling shareholders, management, private equity groups buyers and service providers. We also have successfully completed numerous ESOP transactions for public companies and privately held companies around the world and helped other advisory professionals involved in an ESOP transaction.
Our transaction experience includes:
We represent many prominent lending institutions and venture funds in the United States that make loans in large and small ESOP transactions. We help them develop innovative techniques that might otherwise be overlooked for structuring private equity participation and ESOP loans, drawing on vast experience we have with ESOP transactions and lending situations. Our bank regulatory lawyers are again involved if bank holding companies or banks are parties, particularly due to the availability of trust preferred securities offering as an alternative financing mechanism.
ESOPs can be even more beneficial for Subchapter S companies by combining the tax advantages of a Subchapter S election and ESOPs. Like all other shareholders of a Subchapter S corporation, an ESOP must include in its gross income its proportionate share of the S corporation’s gross income. Because an ESOP is exempt from federal taxation, all tax on the ESOP’s proportionate share of the S corporation’s income is deferred. If all of the stock of an S corporation is owned by an ESOP, there will be no tax on the corporation’s current earnings.
ESOPs can also assist a company in preparing for a Subchapter S election by reducing the number and types of shareholders in order to comply with Subchapter S. An ESOP counts as only one shareholder, so the employer can provide a benefit in company stock within the ESOP and not cause an increase in the number of shareholders. Employees may also roll IRA funds into the ESOP, which aids in reducing the types of shareholders that may own company stock as most IRAs would not otherwise be eligible Subchapter S corporation shareholders.
In today’s business environment, companies are faced with the difficult challenge of operating and growing a profitable company, while retaining, attracting and managing employees’ diverse expectations. As a special type of qualified retirement plan, an ESOP is a versatile tool that can help you achieve your business goals with proper guidance and ESOP team.
Successful ESOP companies enjoy increased productivity as employees are given a significant ownership stake in the companies for which they work. Their versatility makes them increasingly popular. Here are a few examples how ESOPs can be used: