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1. For Prospective EO Companies
2. For Established EO Companies
• Training on ESOPs and Ownership Culture
• Networking with Massachusetts ESOP Companies
1.
For Prospective EO Companies The decision to introduce employee ownership into a business is complex. Through introductory technical conversations held either on-site or at MASSEIO offices in Cambridge, MASSEIO staff help seller groups and employees consider the key questions that should be answered before a decision to proceed. Sellers of companies are often aware of tax incentives to sell their companies to an ESOP but are not familiar with the rules surrounding those tax incentives. A company’s size, profitability, existing benefit menu and ability to service debt are all factors that should be considered before determining whether an ESOP is appropriate. These factors and others such as the role of ESOP Trustees, corporate governance and costs of administration and communication can be explored before companies undertake expenses associated with a sale. There is no charge for
introductory technical conversations with MASSEIO staff about these issues
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MASSEIO provides qualified Massachusetts-based employers with a dollar-for-dollar match to help defray the costs of professional services to consider or implement a broad-based employee ownership plan. Eligible activities include employee ownership related feasibility studies, legal planning, and business appraisals.
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Feasibility Studies
Feasibility studies help determine whether companies are suitable candidates for broad-based employee ownership. These studies estimate preliminary enterprise value and analyze the debt carrying capacity of companies exploring ESOPs. These studies are not a substitute for formal independent company valuations that must be undertaken prior to the introduction of an ESOP. Feasibility studies are estimated to cost between $7,000 - $10,000. The MASSEIO match is for 50% of feasibility cost estimated between $3,500 - $5,000. Feasibility studies are performed by MASSEIO staff or contractors approved by MASSEIO staff.
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Business Appraisals/Valuations
To implement an ESOP, a formal, independent appraisal or valuation must be undertaken to establish a fair market value for the company’s stock. The ESOP will purchase stock based on the price established by this valuation. Appraisals for ESOP transactions are estimated to cost from $8,000 to $10,000. The MASSEIO will match up to $5,000 of business appraisal costs for the purpose of implementing an ESOP. The MASSEIO does not offer formal appraisal/valuation services but can recommend experienced business appraisers.
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Legal Planning
An ESOP is a qualified retirement plan governed both by ERISA and IRS rules. Legal advice is needed both in structuring the ESOP and in filing the appropriate government documents. MASSEIO matching funds can be used to help cover some of the legal expenses attendant to implementing an ESOP. The MASSEIO will match up to $5,000 of legal expenses related to the implementation of an ESOP. The MASSEIO can recommend attorneys experienced in structuring Employee Stock Ownership Plans.
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To be eligible for a matching grant, the professional service sought must be directly related to the exploration or implementation of broad-based employee ownership and provided by a vendor approved by MASSEIO. Please note that no more than $5,000 can be granted to an individual company.
To apply for a matching grant, please complete the Feasibility Support Application.
2. For Established EO Companies
ESOP Facts - ESOPs are a specific form of defined contribution benefit plan
that invests primarily in employer stock. Many of the features of ESOPs
resemble 401k plans but there are differences. MASSEIO staff can work
with internal trainers or provide on site direct training on the workings of
ESOP plans for employees of Massachusetts companies.
Ownership Culture - Beyond communicating the facts about ESOPs, Massachusetts employers may be interested to learn about how ESOP employers
around the United States have made use of the concept of an ownership
culture – where employees and managers think and act like owners.
MASSEIO staff can work with internal trainers to explore how these concepts can be introduced in Massachusetts companies.
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MASSEIO staff can arrange site visits for prospective Massachusetts employee-owned companies with existing employee-owned companies. Research performed by MASSEIO in 2006 established a minimum of 95 ESOP
companies that collectively employ over 26,000 people. Many of these
ESOP companies have expressed a willingness to extend a friendly hand to
new companies considering employee ownership.
MASSEIO staff can also introduce prospective employee-owned companies
to a schedule of regional and national meetings of employee-owned companies through organizations such as the New England ESOP Association,
the National Center for Employee Ownership and the ESOP Association of
America.
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