An ESOP valuation determines the value of the stock held by the employee stock ownership plan. The valuation is often used by trustees of the ESOP for the ongoing administration of the ESOP.

What are the benefits of a employee stock ownership plan?

For many companies, employee stock ownership plans can offer benefits to the selling shareholder, as well as to the existing employees who will become owners in the company upon completion of the ESOP.

Estimating the value of the stock of a privately held company is often a very complex process. Despite the complexity, the benefits of selling the company to an ESOP are numerous. Some of the benefits include: The ability to sell the business in installments over time; Income tax advantages; The opportunity to reward employees for their loyalty to the business; To better ensure the business will remain intact instead of layoffs and other acquisition reductions.

What types of issues must be considered when conducting an ESOP valuation?

There continues to be an increase in the number of ERISA audits of ESOP related companies and corresponding appraisals. The many difficult elements encountered in the appraisal of ESOP-owned stock require consideration from an appraiser experienced in the nuances of an ESOP. For example, ESOP-owned companies have the issue of stock repurchase obligation, the value of the tax shield of principal payments on ESOP debt, and the impact of the mandatory put option for employee owned stock. There are often a number of ERISA issues that need to be properly understood.

Cambridge Partners appraises fractional ownership interests in ESOP companies and is availble to explain our experience as well as many of the potential benefits available to company owners.