While there are many benefits of implementing an employee stock ownership plan (ESOP) for companies, their owners and employees, these transactions have many complexities and points for consideration, often requiring proficiency in multiple areas of law. Our talented ESOP attorneys walk clients through every step of the ESOP cycle, from feasibility studies to plan termination.

Owners of privately-held organizations, including those that have an ESOP, face many challenges:

  • Aligning employees’ goals with those of the company and its shareholders.
  • Selecting a business exit strategy. 
  • Financing growth using a tax-favored strategy.
  • Complying with Internal Revenue Code (Code) and Employee Retirement Income Security Act (ERISA) requirements applicable to ESOPs and other retirement plans.
  • Understanding challenges related to the concentration of participant accounts. 
  • Exploring ESOP repurchase liability and Code Section 409(p) compliance.

When businesses consider implementing an ESOP, navigating an ESOP’s complexities can be daunting. That is why it is crucial to partner with experienced attorneys. At Polsinelli, our knowledgeable attorneys counsel businesses of all sizes on implementing, sponsoring and/or terminating an ESOP, creating a market for shares of a privately held company or acquiring or disposing of an ESOP-owned company. When business owners work with Polsinelli attorneys, we consider the future of the business and its owners from every angle.

We guide clients, including companies, trustees, selling shareholders and lenders, through a broad array of ESOP processes and services, including:

  • Conducting exploratory studies on whether an ESOP is right for an organization, including considerations of the employee population, tax goals and shareholder exit strategy.
  • Suggesting alternative paths that offer employee ownership and incentivize company performance if an ESOP is not right for business.
  • Drafting ESOP plan documents and transaction documents, including stock purchase agreements, loan agreements and any other ancillary documents required for ESOP transactions.
  • Advising on corporate transaction structures and issues involving ESOP-owned companies, including compliance with fiduciary duties.
  • Advising on organizational structure, corporate governance, corporate and ERISA fiduciary responsibilities.
  • Drafting, reviewing and negotiating lending agreements and other credit documents pertaining to ESOP transactions.
  • Counseling benefits committees and plan sponsors on fiduciary duties and ERISA requirements.
  • Guiding selling shareholders through the Code Section 1042 process, allowing shareholders to potentially realize a tax-free sale to an ESOP
  • Reviewing of and advising on Code Section 409(p) tests for S corporation ESOPs.
  • Assisting with plan audits by the Internal Revenue Service (IRS) or U.S. Department of Labor (DOL).
  • Assisting with RFPs and negotiating with ESOP service providers, including plan trustees, third-party administrators and record keepers.
  • Representing plan sponsors, trustees or other fiduciaries in connection with litigation arising out of an ESOP transaction or ESOP sponsorship.

With substantial experience in ESOP-related transactions and post-closing ESOP matters, Polsinelli’s ESOP attorneys are committed to guiding you through the complexities to reach a successful conclusion to your ESOP transaction and will be there to assist you following the closing of your ESOP transaction.

Related Capabilities
Employee Benefits & Executive CompensationERISA Litigation
Publications
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Federal Court Grants Summary Judgment in ESOP Releveraging Case, Rejecting Novel Dilution Theory
Key Takeaways A federal district court in Arkansas granted summary judgment in favor of an ESOP sponsor, its board and the ESOP trustee, rejecting claims that a two-step releveraging transaction violated ERISA fiduciary duties. The court held that decisions regarding ESOP repurchase obligation strategy, such as releveraging, are generally corporate business decisions, not fiduciary acts subject to ERISA — particularly where the board spent considerable time with qualified third-party advisors workshopping various alternatives to releveraging. The court also reinforced that ESOP trustees satisfy their fiduciary duties where they engage in a robust, well-documented process, rely on independent advisors and negotiate favorable transaction terms for the plan. The U.S. District Court for the Western District of Arkansas granted summary judgment to all defendants in Shipp et
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North Carolina Federal Court Lets ESOP Fiduciary Claims Proceed, Underscoring Active Oversight Duties
Key Takeaways A North Carolina district court largely denied motions to dismiss ERISA and malpractice claims arising from a leveraged ESOP transaction and subsequent sale, allowing fiduciary breach claims against an independent trustee, private equity investors and transaction counsel to proceed. The court emphasized that ESOP trustees must actively investigate red flags and advocate for plan participants, rejecting arguments that a trustee may simply rely on process formalities. Although this litigation remains in the early stages, the court’s refusal to dismiss most ERISA fiduciary claims reinforces the judiciary’s expectation that ESOP fiduciaries must actively safeguard participant interests. The U.S. District Court for the Western District of North Carolina denied on March 3 motions to dismiss ERISA-related claims involving the employee stock ownership plan (ESOP)
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