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ESOPs as a Succession Planning Tool: Delivering Meaningful Benefits to Participants, Complying With ERISA Requirements

Recording of a 90-minute CLE video webinar with Q&A

This program is included with the Strafford CLE Pass. Click for more information.
This program is included with the Strafford All-Access Pass. Click for more information.

Conducted on Thursday, June 10, 2021

Recorded event now available

or call 1-800-926-7926

This CLE course will provide corporate counsel to small and closely-held businesses with an overview of employee stock ownership plans (ESOPs) as an option for succession planning. The panel will discuss how to develop an ESOP that maximizes the potential of ESOPs in succession planning, delivers benefits to participants, and follows all ERISA requirements.


As business owners develop a succession plan to reap the benefits of having a successful enterprise, there may not be a "next generation" to inherit or carry on the family business or a team of key management with the financial resources to buy out the owner. Founders worry that a potential buyer will make substantial changes in their business culture and possibly terminate loyal employees and managers who have helped the founder build that successful business.

An ESOP is one strategy to consider and analyze. An ESOP may allow the owner to sell the company at once or several tranches over several years. Subject to ERISA standards to protect the ESOP, the owner may continue to serve on the board of directors and maintain a key officer position during the transition to the next generation of management. Furthermore, the owner(s) can defer their capital gains taxes on a sale of company stock to an ESOP trust under Section 1042 of the Internal Revenue Code of 1986, as amended.

Certain factors should be present if an ESOP is to be successful. First, there needs to be a solid, next generation of senior management to run the company, or the selling shareholder must commit to staying on to develop the team. Second, the future of the business should project positively with ample profitability to repay acquisition indebtedness. Running an ESOP-owned business is more complicated than normal, so if the business is on a downward trajectory, things could become even more difficult to manage with the presence of an ESOP. It actually is not advisable to accomplish an ESOP for a business that is declining from a financial perspective. An ESOP feasibility study will help to identify whether a business is a proper candidate for an ESOP business succession transaction. Third, the founder and the business should have a desire to share equity with employees on a broad basis and create an ownership culture. Studies have proven that an effective employee ownership culture combined with broad-based sharing of equity will generally help to improve a company’s productivity and profitability.

Finally, there needs to be a motivated seller. Typically, the owner/founder seeks to retire or diversify his/her wealth, receive fair compensation, and recognize employees who helped make the business successful. The trustee or independent fiduciary must be experienced to address any potential conflicts or fiduciary issues, should they exist.

Our speakers will provide corporate counsel to small, medium, and large closely-held or publicly-traded businesses with an overview of ESOPs as an alternative for succession planning. The panel will discuss how to develop an ESOP that maximizes the potential of ESOPs in succession planning, delivers benefits to participants, delivers substantial tax savings to businesses and their owners, and follows all ERISA requirements (which is critical and mandatory).

Listen as our expert panel reviews the best practices of using an ESOP for succession planning and what potential pitfalls counsel should be aware of when developing a successful plan.



  1. ESOP formation Post-COVID-19
  2. Recent regulatory trends and developments
  3. Legal risks and challenges
  4. Practical tips and best practices
  5. Outlook


The panel will review these and other important topics:

  • When should a business owner consider an ESOP as part of succession planning?
  • What types of businesses are most compatible with an ESOP as succession planning?
  • How can a business establish senior management as part of an ESOP and provide separate incentives to such team members?
  • How does the need for motivated sellers affect the use of an ESOP?


Johanson, David
David R. Johanson

Senior Partner
Hawkins Parnell & Young

Mr. Johanson assists clients in general corporate matters and in employee ownership, benefit, ERISA, and related...  |  Read More

Silla, Matthew
Matthew J. Silla, ASA, CFA

Senior Manager, Business Valuation
Apple Growth Partners

As an Accredited Senior Appraiser, Mr. Silla has been responsible for the development of several hundreds of business...  |  Read More

Wilkes, Stephen
Stephen P. Wilkes

The Wagner Law Group

Mr. Wilkes heads the firm's Investment Management Law practice. He also is a Practice Group leader for the...  |  Read More

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