Mangement

ESOP


Employee Stock Option Plan (ESOP) transactions in closely held companies must be based on a current appraisal by an independent, outside valuation expert. The valuation process assesses how much a willing buyer would pay a willing seller for the business. Various factors are considered in valuing ESOPs. ESOP valuations are generally more complex than regular valuations of businesses. Employee Retirement Income Security Act (ERISA) regulations for ESOPs add the “adequate consideration” standard to the fair market value standard of IRS valuation review. ERISA of 1974 established a regulatory requirement that an ESOP pay no more than “adequate consideration” in the purchase of employer securities; ESOP valuations must support the decisions of the trustees and must also withstand review by DOL and the IRS. ESOP valuations consist of qualitative and quantitative analysis of businesses, reviewing detailed information on the business, the industry, management, competition, financial performance, operating conditions, and future projections.

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