ESOP Planning & Advisory

An Employee Stock Ownership Plan (ESOP) is a tax-qualified, deferred compensation employee benefit plan in which assets are invested primarily in the securities of the sponsoring employer. ESOPs are often the most tax-efficient method for funding a transition of ownership. Regulated by the U.S. Department of Labor through laws provided in the Employee Retirement Income Security Act of 1974 (ERISA), these regulations generally require that all nonunion employees participate in the ESOP.

While ESOPs can be tax-efficient, company owners should also consider whether an ESOP is the most effective structure for their company. The legal and regulatory issues can be complex, and ownership is required to be spread among all nonunion employees, in contrast to the more typical structure where ownership is concentrated in a single owner, the management team or in a family. Choosing the ESOP structure will alter the ownership incentives and generally change the financial reporting practices.

FMI has deep knowledge and experience of the nuances of ESOPs and their application for engineering and construction firms. Through advising clients on ESOP transactions, as well as through our other financial advisory and investment banking services, our professionals have a distinct advantage of being an unbiased trusted advisor who can help determine the best solution for our clients.

To help a client evaluate an ESOP for his/her company, FMI performs an ESOP feasibility analysis and makes recommendations for how the company may want to structure the ESOP. The areas addressed in a feasibility analysis include:

  • Overview of how the ESOP can be structured and how it functions
  • Funding of the ESOP, payroll analysis and company retirement planning
  • Vesting schedules for employee participation
  • Percentage of the company's stock to be owned by the ESOP
  • Impact on ownership strategy and funding Impact on the balance sheet and bonding
  • Repurchase liability for retiring and terminating participants
  • ESOP modeling and examples for the company
  • Advantages and disadvantages


ESOP Planning & Advisory

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