Our considerable resources and background in business law, including M&A, corporate, financial, regulatory, and tax disciplines, provides us the insight to assist private and closely held businesses in structuring ESOPs to respond to a variety of issues and challenges.
Sadis has earned national recognition for its ESOP (employee stock ownership plan) practice.Our clients include business owners, corporations, and internal and external trustees and fiduciaries, which we have represented in a wide range of transactions involving business successions, supplemental employee benefit plans and tax-free recapitalizations.
Our lawyers work closely with banks providing trustee services to the plan and collaborate with the lawyers and advisers to the owners of closely held businesses. This team approach achieves results that make business sense while complying with the complex and technical aspects involved.
What is ESOP?
An ESOP is a type of pension plan which is designed to invest primarily in the stock of the employer corporation. It is the only type of pension plan which can borrow money. Congress has created numerous tax incentives for corporations to promote the formation of ESOPs, including:
The ability of the selling shareholder not to recognize gain on the sale of stock to the ESOP, assuming certain requirements are met
The ability of the corporation to deduct contributions made to the ESOP to pay both interest and principal on loans made to an ESOP
The ability of a corporation to deduct dividends paid on stock held by an ESOP
ESOPs holding stock of an S corporation are not to be subject to tax on their share of corporate earnings
Due to these and other tax incentives, and when used in conjunction with various recapitalization and financing strategies, ESOPs offer business owners an attractive alternative, on an after-tax basis, to sale of the business to a third party.
Benefits of ESOPs
Companies completely owned by an ESOP are not subject to federal and state income taxes, in most states, if the Company has an S corporation election.
Shareholders who sell privately held stock to an ESOP can defer the income on the sale if the proceeds are reinvested in U.S. stocks and bonds, if the ESOP owns at least 30% of the Company after the sale, under Section 1042 of the tax code.
ESOPs are the only type of pension plan that can borrow money from the sponsor corporation. Contributions to ESOPs for repayment of the loans are typically structured to be tax deductible.
Dividends paid on stock held by ESOPs are tax deductible under Section 404(k).
For a more in-depth understanding of our work, we have provided a few Representative Matters on our website. Some of these examples demonstrate our ability to handle complex matters while others provide the scope and depth of our capabilities. The list of Representative Matters is not comprehensive of all the work we do. They represent a sampling.
Represented numerous trust companies serving as ESOP Trustees in the purchase of stock by an ESOP plan; the sale of assets by corporations owned by an ESOP; and the sale of stock by an ESOP plan. Click on the links below to see examples of ESOP deals our Firm has done:
Advised and represented numerous ESOP companies whose Trustees sought our counsel and representation in resolving problems.
Represented numerous clients before the U.S. Department of Labor in ESOP audit situations.
Represented numerous business owners in sales of stock to ESOPs. Structured and represented spin-offs of subsidiaries from Fortune 500 companies to ESOP-controlled entities and then later merged them into other companies.
