Employee Stock Ownership Plans (ESOPs) are retirement plans designed to allow employees to invest in the stock of their company. These plans provide many benefits, including increasing employee loyalty, providing security for employers, and providing retirement resources for employees. Determining the fair market value of the stock owned by the ESOP and its participants is necessary for tax reporting and the planning and management of the ESOP.
The large majority of companies with ESOPs are privately held, which means that there are no active markets for the company’s stock. As a result, trustees of ESOPs typically engage an independent business valuation firm like BVI to value the stock held by the plan.
When are valuations necessary for ESOPs?
Valuations are used for a variety of purposes in planning and managing an ESOP, including:
a feasibility study when a company is considering establishing a new plan
the initial valuation to support the establishment of the ESOP
annual valuation of the ESOP shares for plan trustees to support the management of the ESOP
a valuation to support the termination of the ESOP
The Business Valuation, Inc. Advantage
When it comes to ESOPs, BVI specializes in valuations—we do not provide any other ESOP-related services. This keeps us completely independent and allows us to remain objective when valuing the ESOP’s shares for our clients.
BVI has completed many valuations of firms owned by ESOPs. Our experience, technical expertise, and credibility in presenting well-documented valuation reports to both the IRS and Department of Labor are some of the primary reasons that BVI is the firm of choice for plan trustees.
Who can benefit from employee stock ownership valuations?
ESOP plan trustees benefit from using a qualified, independent business valuation firm that has experience in valuing ESOP ownership interests and discussing the valuation with examiners from the Department of Labor, if necessary.
Individual plan participants benefit from quality valuations by having an accurate price for the ESOP’s shares, determined using: (1) appropriate valuation methodologies, and (2) the facts and circumstances of both the company and the ESOP.
The company’s senior management also benefits from working with an experienced valuation firm that can efficiently use its time and resources when preparing the valuation.