An Employee Stock Ownership Plan (ESOP) is a financial tool that can provide business owners and their businesses with significant tax savings, enhanced cash flows and an important employee benefit plan linked to company performance that can attract and retain employees. Through an ESOP, a business owner may be able to sell all or part of an equity interest in a company, maintain effective control of all business decisions through a proper ESOP structure, defer capital gains taxes on the sale of equity stock under certain design scenarios, diversify wealth accumulated in the business, provide an affordable method to transfer control of the business to the next family generation or key-employee group, and provide an effective method to enhance estate and gift planning opportunities.
Valuations relating to ESOPs are generally more complex than regular valuations of businesses because an ESOP valuation must withstand potential challenges by an employee or by either of the federal agencies, the Internal Revenue Service (IRS) and the U.S. Department of Labor (DOL). The DOL has the responsibility for administering the Employee Retirement & Security Act of 1974 (ERISA) regulations for ESOPs. From a strictly regulatory standpoint, a valuation of ESOP shares by an independent third party is required by DOL and the IRS. The regulatory requirement stems from the practical need to insure that the value is determined by a party who does not have a personal or financial interest in the valuation result. The valuation should be performed on behalf of the ESOP trustee since it is the duty of the trustee to insure that transactions with the ESOP are consummated at “fair market value.”
These regulations add the "adequate consideration" standard to the fair market value standard of IRS valuation review, and ESOP valuations must support their review. As such, valuations subject to third party review must include considerable background detail so potential third-party reviewers will have a clear understanding of the process leading to the value conclusion. For an ESOP, the purpose of the appraisal is to protect the interests of the ESOP participants from paying more than fair market value.
Vantage Point Advisors has significant experience valuing ESOPs and can provide the independent, high quality, fully documented appraisal required to withstand challenges by government agencies.
Few companies would be willing to adopt an ESOP before determining whether or not the value of company stock will support management objectives. As such, we offer valuations for feasibility purposes to aid in determining whether an ESOP makes sense for the Company.
The various types of reports are summarized below:
• Adequate consideration opinions related to original ESOP formation
• Annual ESOP update valuations
• Adequate consideration opinions related to stock tender offers
• Feasibility analysis for both C and S corporations
• Expert testimony related to regulatory challenges
• Fairness Opinions for ESOP purchases and plan terminations
