Employee Stock Ownership Plan Valuation

An important employee benefit plan that can both attract and retain employees is accomplished through an Employee Stock Ownership Plan (ESOP).  ESOP’s can also provide significant tax savings.  In the last several years, ESOPs have grown in popularity as a means to compensate and motivate employees.  The sale of company stock to employees provides opportunities for estate and succession planning as well.

The complexity of valuations relating to ESOPs, is generally greater than valuations performed for other purposes.  This is true because of potential challenges of the ESOP valuation from federal agencies, namely the Internal Revenue Service (IRS) and the U.S. Department of Labor (DOL).  A valuation of the ESOP shares is required to be performed by an independent third party.  In addition it should be performed by a qualified appraiser who has experience in ESOP valuations.  Furthermore, any valuation of ESOP shares should be performed for the trustee of the ESOP, as it is their responsibility to ensure that ESOP transactions are completed under the premise of “fair market value.”

KTS has a significant amount of experience in valuing ESOPs.  We are active members of The ESOP Association and the National Center for Employee Ownership (NCEO).  KTS is commonly engaged to perform ESOP valuations for the following types:

  • Formation of an ESOP - KTS assists business owners by performing a preliminary valuation analysis and providing a range of value.  If it is decided, after providing a range of value, that a company is going to proceed with the formation of an ESOP, KTS will then proceed with concluding on a value for a company and will prepare a narrative report.
  • Annual ESOP update valuations - Because an ESOP is required to have a valuation performed on an annual basis, KTS assists ESOP trustees by preparing annual valuation updates that are needed for ESOP administration purposes.
  • Fairness Opinions for ESOP terminations - KTS assists in providing fairness opinions for ESOP terminations.  The purpose of the fairness opinion is to determine if the pending ESOP transaction is fair to the ESOP and its owners.