A Case Study An ESOP is one of many options available to business owners considering succession-planning options. There are substantial advantages, but there are also regulatory and cost considerations. A feasibility study may suggest whether the ESOP is an appropriate option. In this article, authors Kelly Finnell and Andrew Holmes share their views on when an ESOP is feasible using a case study.
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A Note on ESOP Valuation[1] One of the most critical issues regarding valuation is the concept of adequate consideration. The ESOP trustee cannot pay more than “adequate consideration” for the stock it purchases.[2] In the context of an ESOP, ERISA defines adequate consideration as the stock’s “fair market value…as determined in good faith by the trustee…”[3] The proposed Department of Labor regulations define “fair market value” as the “price at which [the stock] would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under…