Use of "enterprise value" when an ESOP purchases less than a "majority" of a company's outstanding stock

Article Abstract:

When an employee stock ownership plan (ESOP) buys less than 50% of a corporation's outstanding stock, the stock should be valued using the 'enterprise value' theory. This will avoid the discounting of the fair market value of the stock because it is only a minority interest. Department of Labor regulations indicate that even if stockholders sell 50% or less of the voting stock of a company to the ESOP, they may still be permitted to sell based on enterprise value if they pledge to allow the ESOP to buy enough additional stock so that their level of ownership amounts to more than 50%.

Management, Valuation, Employee stock ownership plans, United States. Department of Labor

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Avoiding problems with IRC 409(n) and 4979A in IRC 1042 multi-investor ESOP LBOs

Article Abstract:

Careful tax planning is important when a management purchase of equity helps fund an employee buyout of a company and an employee stock ownership plan (ESOP). This is because sellers of ESOP stock who want to defer taxation of the gain realized on the sale under IRC 409(n) and IRC 1042 must limit their sales of stock to individuals in controlling positions in the corporation. It may be wise to exclude management investors from participating in the ESOP and to place them in stock appreciation rights programs or nonqualified deferred compensation arrangements funded through trusts.

Recognition of gain or loss (Taxation), Recognized gain or loss (Taxation), Securities taxes

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Internal Revenue Code s. 306 and ESOPs

Article Abstract:

Leveraged employee stock ownership plans (ESOPs) may need cash dividends on stock acquired to amortize their indebtedness. Using tax-deductible dividends that are exempt from ordinary income treatment under IRC 306 will make this task easier. IRC 306(b) lists dispositions of Section 306 shares which qualify for this exemption. Section 306 stock with this exemption can be rolled over tax-free under IRC 1042.

Dividends, Corporate reorganizations

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