Employee Stock Ownership Plan (ESOP):
ESOPs are a powerful employee benefit that can
also serve as a valuable method to sell all of a portion of a
business. A proper business valuation is a key element to the
implementation and on going success of an
ESOP.
ESOP fiduciaries are required to employ an independent valuation
practitioner meeting requirements similar
to the requirements of regulations under IRC section 170(a)(1) relating to
independent determinations of the
fair market value (FMV) of donations to charitable organizations [see IRC
section 408(a)(28)(C)].
A qualified valuation practitioner, according to these regulations, is a
person who, among other qualifications:
-
Is not a party to the transaction, is not related to any party to the transaction, is not married to
any person with a relationship to the transaction, is not regularly used by any of the parties to
the transaction and who does not perform a majority of appraisals for these persons.
-
Holds himself or herself to the public as a valuation practitioner or performs appraisals on a regular
basis;
-
Is qualified to make appraisals of the type of property being valued. The appraiser's background,
experience, education, and memberships, if any, in professional associations must be disclosed;
-
Understands that an intentionally false or fraudulent overstatement of value may subject
the valuation practitioner to a civil penalty; and,
-
Receives an appraisal fee that is not based upon a percentage of the appraised value of the property.
ESOP valuations require a substantial amount
of specialized accounting, regulatory, tax, and valuation
knowledge.
Enterprise Value
Consulting is experienced in dealing with these issues.
Because of the nature of review conducted by
the Internal Revenue Service (IRS) and the Department of Labor
(DOL), a Full Valuation Report is required. While a Valuation Calculation
can be used for ESOP feasibility
purposes, it cannot be used for purposes of the initial ESOP transaction
or the required annual updates.
