Ce diaporama a bien été signalé.
Le téléchargement de votre SlideShare est en cours. ×

ESOPs 101 (Series: Cross-Training for Business Lawyers 2020)

Publicité
Publicité
Publicité
Publicité
Publicité
Publicité
Publicité
Publicité
Publicité
Publicité
Publicité
Publicité

Consultez-les par la suite

1 sur 42 Publicité

ESOPs 101 (Series: Cross-Training for Business Lawyers 2020)

Employee stock ownership plans (ESOPs) are plans regulated by the Employee Retirement Income Security Act (ERISA) and designed to allow employees to invest in the stock of their employer. The shareholder participants/employees as well as the sponsoring company generally receive tax benefits through the use of the plan. And while they are generally touted as designed to promote employees’ interest and efforts in maximizing the value of the company for the benefit of both employer and employees, ESOPs are often used as a method of corporate finance by the sponsoring company.

To listen to this webinar on-demand, go to: https://www.financialpoise.com/financial-poise-webinars/esops-101-2020/

Employee stock ownership plans (ESOPs) are plans regulated by the Employee Retirement Income Security Act (ERISA) and designed to allow employees to invest in the stock of their employer. The shareholder participants/employees as well as the sponsoring company generally receive tax benefits through the use of the plan. And while they are generally touted as designed to promote employees’ interest and efforts in maximizing the value of the company for the benefit of both employer and employees, ESOPs are often used as a method of corporate finance by the sponsoring company.

To listen to this webinar on-demand, go to: https://www.financialpoise.com/financial-poise-webinars/esops-101-2020/

Publicité
Publicité

Plus De Contenu Connexe

Diaporamas pour vous (20)

Similaire à ESOPs 101 (Series: Cross-Training for Business Lawyers 2020) (20)

Publicité

Plus par Financial Poise (20)

Plus récents (20)

Publicité

ESOPs 101 (Series: Cross-Training for Business Lawyers 2020)

  1. 1. 1
  2. 2. 2 Practical and entertaining education for attorneys, accountants, business owners and executives, and investors.
  3. 3. 3 Thank You To Our Sponsors
  4. 4. Disclaimer The material in this webinar is for informational purposes only. It should not be considered legal, financial, or other professional advice. You should consult with an attorney or other appropriate professional to determine what may be best for your individual needs. While Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate, Financial Poise™ makes no guaranty in this regard. 5
  5. 5. Meet the Faculty MODERATOR: Chris Cahill - L&G Law Group LLP PANELISTS: Alan Kandel - Husch Blackwell Sanders LLP Lee Eisenstaedt - Leading With Courage Academy Chris Mellen - Valuation Research Corporation 6
  6. 6. About This Webinar ESOPs-101 Employee stock ownership plans (ESOPs) are plans regulated by the Employee Retirement Income Security Act (ERISA) and designed to allow employees to invest in the stock of their employer. The shareholder participants/employees as well as the sponsoring company generally receive tax benefits through the use of the plan. ESOPS are touted as promoting employees’ interests in maximizing the value of the company for the benefit of both employer and employees. ESOPs are also a method of corporate finance deployed by the sponsoring company. This webinar discusses strategies of, and benefits and consequences to, the sponsoring corporation and employees in implementing an ESOP. 7
  7. 7. About This Series Cross-Training for Business Lawyers Looking to strengthen and condition your cross-disciplinary skills? Develop your flexibility by increasing your familiarity with issues affecting a vast array of businesses? This series delves into (i) the role of local land-use and zoning laws in property use and development; (ii) the use, types and perceived benefits of employee stock ownership plans, (iii) the maze employers and employees must navigate in securing immigrant or non-immigrant visa status for workers, and (iv) the use of credit insurance by sellers to protect against non-payment of commercial debt. Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and executives without much background in these areas, yet is of primary value to attorneys, accountants, and other seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that participants will enhance their knowledge of this area whether they attend one, some, or all episodes. 8
  8. 8. Episodes in this Series #1: ESOPs-101 Premiere date: 4/2/20 #2: Immigration Law-101 Premiere date: 5/7/20 #3: Zoning & Land Use-101 Premiere date: TBD #4: Credit Insurance-101 Premiere date: TBD 9
  9. 9. Episode #1 ESOPs-101 10
  10. 10. Understand Why You are Selling: Does Selling to Employees Make Sense? • Liquidity / succession planning for owner • Growth and expansion / raising capital • Attract & retain good employees / enhance performance • Shared entrepreneurship • Tax benefits 11
  11. 11. Employee Interests: Can Your Employees Buy the Company? • How many employees do you have? • Are they capable of running the company? • Can they raise the necessary capital? 12
  12. 12. Pros of Selling to Employees • Reduced confidentiality concerns • Employees understand business and industry • Reduced need for comprehensive due diligence • Continuity with customers and vendors • Satisfaction of succession 13
  13. 13. Cons of Selling to Employees • Employees can rarely pay top dollar • Employees lack collateral to borrow from a bank • Employees are often less entrepreneurial • Risk of financing sale  Puts equity at risk until note is retired • Risk of foreclosing on employees’ collateral 14
  14. 14. Additional Considerations for Employee Ownership • Governance / control issues • Valuation issues • Post-transaction succession planning / funding of buy-out of employee-owners 15
  15. 15. Methods of Selling Company to Employees • “Installment Sale” • Leveraged management buyout • Use of employee stock ownership plan 16
  16. 16. “Installment Sale” Mechanics • Parties (current owner and participant employees) agree on value of the business • One or more employees agree to buy some/all of equity from current owners • Little/no money paid at closing  Current owner receives a promissory note from new owner / “Earn Out” based on future performance of the business 17
  17. 17. Pros and Cons of “Installment Sale” • Pros  Rewards/motivates key employees with direct ownership  Business can be acquired with little/no money down and paid through cash flow from business • Cons  Owner may not get full “strategic” value for the business  Owner gets little/no money up front and assumes risk with no control over business post-closing 18
  18. 18. Leveraged Management Buy-Out • Parties (current owner and participating employees) agree on value for the business • New employees obtain capital from a third party lender to acquire equity from current owner • Former owner receives cash from 3rd party financing source and equity transfers from former employees and source of financing (maybe) 19
  19. 19. Pros and Cons of Leveraged Management Buy-Out • Pros  Rewards/motivates employees with direct ownership in company  Provides former owner with up-front payments  Company obtains additional capital/management expertise from outside financing source • Cons  Owner may not get full “strategic” value for sale of business  Requires outside financing which may be hard to attract  New employee owners may need to share equity ownership and control over business with new financial partner 20
  20. 20. What is an ESOP? • Stands for Employee Stock Ownership Plan • A qualified “defined contribution” retirement plan sponsored by the company • Similar to a 401(k) plan, but has several key differences:  Must be invested primarily in the stock of the sponsor  Employees generally do not invest their own money in the plan (with certain exceptions depending on transaction structure)  Unlike other qualified plans, an ESOP can borrow money to purchase the stock to be held for funding the employee’s retirement benefits 21
  21. 21. Typical Structure of an ESOP Transaction • ESOPs are used to facilitate the transition of ownership of a company in the following manner: 22
  22. 22. Mechanics of an ESOP Transaction 23
  23. 23. How ESOPs Work 24
  24. 24. How ESOPs Work 25
  25. 25. Benefits of an ESOP Transaction • An ESOP allows employees to share in the growth of the company and still maintain existing corporate culture/management structure • An ESOP can provide tax benefits to the shareholders who sell stock to an ESOP • An ESOP can provide tax savings and cash flow benefits to the Company/Plan Sponsor 26
  26. 26. Benefits to Employees • “Current management and operational structure of the company can be maintained • Obtain benefits as an owner of the company stock without any personal investment required • ESOP benefits are an additional source of retirement  Most ESOP companies use ESOPs to supplement existing compensation/retirement plans (e.g., 401(k)’s) • Stock in an ESOP is not a passive investment  High performance by workers contributes to achievement company goals, and raises value of ESOP-owned stock 27
  27. 27. Tax Benefits to a Selling Shareholder (IRC Section 1042) 28
  28. 28. Requirements of a 1042 Transaction • Seller must have held stock for at least three years prior to the sale to the ESOP • 30% ESOP ownership post-transaction • Reinvestment of proceeds in “Qualified Replacement Property” • ESOP must hold securities for three years after transaction • Prohibited allocation rules • Available only if Company is a C Corporation
  29. 29. Tax Benefits to ESOP Companies • An ESOP can provide tax savings and cash flow benefits to the company / plan sponsor  Repayment of ESOP debt with pre-tax dollars  Potential to eliminate corporate income taxes (S corporation ESOPs)
  30. 30. Benefits of Repayment of Debt Using an ESOP
  31. 31. Benefits of an S Corporation ESOP • Having an ESOP as a shareholder of an “S” corporation has significant tax consequences  Since an ESOP is a “tax-exempt” shareholder, no tax is payable on ESOPs share of taxable income
  32. 32. S Corporation ESOP Cash Flow Analysis
  33. 33. Cons of an ESOP • Owner will not be able to recognize a “strategic” premium on sale of the business • Ongoing costs to maintain and ESOP • Post-transaction repurchase obligations • ERISA fiduciary responsibilities
  34. 34. Alternatives to Selling to Employees • Gifting equity or paying bonus compensation with equity interests • Granting restricted stock or stock options • Granting “Synthetic Equity” (phantom stock, stock appreciation rights, etc.)
  35. 35. About the Faculty 36
  36. 36. About The Faculty Chris Cahill - ccahill@lgcounsel.com Mr. Cahill is Head of the Bankruptcy and Restructuring Practice Group at L&G Law Group LLP, in Chicago, Illinois. He guides secured lenders, creditors, debtors, creditors’ committees, potential purchasers, and others through bankruptcy cases, out-of-court workouts, assignments for the benefit of creditors, and receiverships. Mr. Cahill also publishes and speaks frequently on commercial insolvency issues. He as been, since 2014, an executive editor of Commercial Bankruptcy Litigation, 2d Edition (Jonathan P. Friedland, Elizabeth Vandesteeg & Christopher M. Cahill eds., 2020), a comprehensive and annually updated treatise published by Thomson Reuters. 37
  37. 37. About The Faculty Alan Kandel - Alan.Kandel@huschblackwell.com Alan counsels a wide variety of clients – publicly traded, privately held, tax-exempt and governmental – as they navigate the highly regulated space of Employee Benefits and Executive Compensation. He works closely with clients to design and draft durable and strategic benefit plans that meet compliance benchmarks while aligning with business goals, including: employee stock ownership plans (ESOPs), 401(k) and other qualified retirement plans, Internal Revenue Code section 409A and other laws regulating nonqualified deferred compensation plans for executives, equity and phantom equity plans for public and privately held companies, and welfare and fringe benefit plans. Alan also advises buyers and sellers on employee benefit and executive compensation issues in corporate transactions. When clients face unanticipated examinations or rulings, he defends their interests before the Internal Revenue Service (IRS), Department of Labor (DOL) and Pension Benefit Guaranty Corp (PBGC). Clients appreciate Alan’s collaboration with labor lawyers and investment advisors across the nation thanks to the firm’s coast-to-coast footprint. 38
  38. 38. About The Faculty Lee Eisenstaedt - Lee@lwcacademy.com Lee is a well-rounded business man, author, and speaker who designs and facilitates succession planning and leadership development assessments and workshops primarily for employee- companies (e.g., ESOPs). His interactive programs help teams and individuals build a Culture of Leadership™ that's characterized by higher levels of self-awareness, trust, engagement, communication, and collaboration. His 35 years in industry and the C-Suite, as a senior finance and operations executive with two multi-billion dollar, multi-national companies in both the U.S. and Europe, and as the COO of two Top 50 CPA firms, allow him to help clients. With a heightened awareness of their leadership behaviors, he assists clients develop and implement action plans that enable them to make a bigger impact. The effect their efforts are having on the organization are then measured and tracked via regular on-line surveys of employee engagement and emotional intelligence. His specialties are: ESOP, succession planning, leadership assessments, leadership development, Everything DiSC, Five Behaviors of a Cohesive Team, employee engagement, emotional intelligence, creating a leadership culture. 39
  39. 39. About The Faculty Chris Mellen - CMellen@valuationresearch.com Chris is a managing director with Valuation Research Corporation, leading its Boston office. Prior to joining VRC, he was the president and founder of Delphi Valuation Advisors, Inc., which he ran for 15 years and sold to VRC in 2015. Chris specializes in the valuation of closely held businesses, professional practices, and intangible assets. His experience includes involvement in over 3,000 valuations since 1989 in a wide range of industries for such purposes as tax planning and compliance, ESOPs, strategic planning, mergers and acquisitions, post-acquisition purchase price allocation, financial reporting, estate planning, buy-sell agreements, marital and shareholder disputes, and appraisal review. He holds six professional valuation and M&A designations (ASA, MCBA, CVA, ICVS, ABAR, and CM&AA) and earned an MBA in Finance. In addition, Chris has published over 40 articles on valuation-related matters, led over 100 seminars, and provided expert testimony in court. Finally, Chris is author of the third edition of the 480 page textbook Valuation for M&A: Building and Measuring Private Company Value, published in 2018 by Wiley. 40
  40. 40. Questions or Comments? If you have any questions about this webinar that you did not get to ask during the live premiere, or if you are watching this webinar On Demand, please do not hesitate to email us at info@financialpoise.com with any questions or comments you may have. Please include the name of the webinar in your email and we will do our best to provide a timely response. IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education. 41
  41. 41. About Financial Poise 42 Financial Poise™ has one mission: to provide reliable plain English business, financial, and legal education to individual investors, entrepreneurs, business owners and executives. Visit us at www.financialpoise.com Our free weekly newsletter, Financial Poise Weekly, updates you on new articles published on our website and Upcoming Webinars you may be interested in. To join our email list, please visit: https://www.financialpoise.com/subscribe/

×