Employee Stock Ownership Plan Valuations
Valuations of equity securities in private companies held by an ESOP must satisfy the requirements of ERISA (Employee Retirement Income Securities Act), as determined by the Department of Labor. An independent appraisal is required when the ESOP makes its first acquisition of stock. In addition, the Tax Reform Act of 1986 requires that shares held by the ESOP be appraised annually by an independent appraiser, although some companies routinely have their stock appraisals updated semi-annually or quarterly. A valuation is also necessary whenever there is a significant transaction involving the sale of ESOP-held shares, e.g. the sale of the Company, or in cases involving the ESOPís purchase of shares.
Our first and longest standing corporate client is an ESOP, for which we conduct quarterly valuations of shares held by the Plan, along with a presentation of our analysis and conclusions to the Trustees. We have ESOP clients in a variety of industries, including engineering, U.S. government contracting, business services, manufacturing and printing, among others. Our President previously served as a member of the ESOP Association Valuation Advisory Committee and we are members of the ESOP Association and the National Center for Employee Ownership (NCEO).
What to Expect
What the regulations require is a business valuation. Yet, given the interested audience, i.e. the Trustee(s), the DOL and ERISA, there is a greater formality. There are also a variety of employment benefit plans that hold employer securities on behalf of covered employees that are subject to the regulations of ERISA, for which we have performed valuation services. Legal counsel should be consulted as to the particular requirements concerning valuation.