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Employee Stock Ownership Plans (ESOP) Open for Business

An Employee Stock Ownership Plan (ESOP) is a tax qualified defined contribution retirement plan regulated under ERISA and the Internal Revenue Code. An ESOP is a special type of retirement plan because it is designed to invest in securities of primarily one company - the sponsoring employer and is the only retirement plan that can borrow money to acquire employer securities.

ESOPs offer strategic and structural features that can help accomplish various objectives of companies and their shareholders, including:

  • Tax-advantaged financing
  • Exit and succession strategy for owners and investors
  • Tax deferral of capital gains on sale by existing shareholders
  • Useful in a leveraged business acquisition, recapitalization or LBO
  • Expansion of employee ownership
  • Tax-deferred employee retirement funding and savings
  • Deferred employee compensation
  • Eligibility as a tax-exempt S-corporation shareholder
  • Protection against hostile takeover
  • Our ESOP Practice Group

The attorneys in the ESOP Practice Group can advise clients on virtually all aspects of an ESOP, from design and planning, to implementation, financing, corporate governance and mergers and acquisitions activities.

ESOPs are an important employee benefit, estate planning and corporate finance tool. However, the ability for an ESOP to meet the objectives of your shareholders, management and employees must be carefully examined before you make the required commitment to such a program. Our ESOP attorneys bring years of experience and innovative ideas to meeting your ESOP business and fiduciary needs. To facilitate the decision-making process, we work with clients and their transaction teams in an integrated, seamless and efficient manner to accomplish a number of ESOP-related business goals, including:

  • Sound advice in uncertain economic times
  • Understanding and implementation of business goals and objectives
  • ESOP feasibility and plan design
  • Stock acquisition/sale transaction structure and management
  • Executive compensation strategies
  • Distribution/repurchase liability strategies
  • ESOP -Fix-It- - Plan corrections, remediation and audits
  • ERISA fiduciary representation
  • Institutional ESOP lender representation

Barnes & Thornburg's ESOP Practice Group includes attorneys who practice in employee benefits, taxation, corporate finance, corporate governance, estate planning, financial institutions, labor and employment, executive compensation and mergers and acquisitions, as well as pension litigation, many of whom are members of the ESOP Association and the National Center for Employee Ownership.


  • Barnes & Thornburg organized and carried out the acquisition of company stock owned by 18 non-ESOP shareholders using a combination redemption and ESOP stock purchase. This deal was structured by splitting the selling shareholders into two different groups for purposes of representations and warranties.

    The client was very pleased with the closing of the transaction, (which caused the company to become a 100% ESOP-owned S-corporation) on a very tight time-frame. The company had used other ESOP counsel for its prior transaction, and was very complimentary of Barnes & Thornburg‘s expertise, deal management, and cost efficiency.
  • Barnes & Thornburg participated in a large-scale ESOP transaction, which was substantially financed by the third-party lender. In the context of a 100% ESOP-owned S-corporation, the compliance with the S-corp rules, and ensuring that the tax-free status of the entity stays in place is critical to the lender’s analysis of its risk in the transaction.

    Barnes & Thornburg continues to participate in a meaningful way to amend the credit facility to accommodate changes in the borrower’s business and the changing structure of collateral.
  • Barnes & Thornburg represented CB Bank Shares and its subsidiary, Central Bank, located in Russiaville, Indiana, in its acquisition by First Farmers Financial Corporation and its subsidiary, First Farmers Bank & Trust Co., located in Converse Indiana, in a $55 million transaction. We also represented the Central Bank ESOP in obtaining shareholder approval of the merger and terminating the ESOP upon consummation.
  • Barnes & Thornburg represented the institutional ESOP trustee as it negotiated with the other company shareholders as to the terms of its participation in a stock sale transaction.

    We assisted the client in negotiating the ESOP’s sale of its shares as a component of other non-ESOP shareholder sales. Our attorneys sought valuation expertise in order to ensure that the ESOP participants were receiving a premium above the current estimated “fair market value” for their beneficial ownership. We provided a legal opinion to First Bankers Trust Services, and oversaw the legal opinion rendered by company counsel.
  • Barnes & Thornburg served as institutional trustee counsel as it reviewed the terms and conditions of the offering to 401(k) participants. This included participating in the drafting of a disclosure statement and a series of meetings between the trustee and plan participants to describe the opportunity and risks involved.

    This transaction required a great deal of due diligence with respect to the underlying company stock investment being proposed to 401(k) participants, as this was not just the trustee purchasing stock, but participants using their own salary deferrals.
  • Barnes & Thornburg, LLP represented a large multi-state telecommunications and commercial graphics company in connection with the leveraged ESOP acquisition of the majority shareholder’s stock through the formation, organization and financing of the ESOP. Financing through Merrill Lynch.
  • Barnes & Thornburg, LLP represented an ESOP Trustee in connection with a leveraged ESOP's acquisition of the majority shareholder's stock in a Mobile, Alabama engineering and consulting firm through the formation, organization and financing of the ESOP. Financing through Alabama capital sources.
  • Barnes & Thornburg, LLP represented the majority shareholders in connection with a leveraged ESOP's acquisition of the majority shareholders' stock in a large Georgia-based retailer of forklift equipment through the formation, organization and financing of a leveraged ESOP.
  • Represented the secured lender in an ESOP-related financing.



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