The Role of ESOP Trustees in Corporate Succession Planning: Securing Business Continuity

September 12, 2023

Employee Stock Ownership Plan (ESOP) trustees are extremely influential in the success of a company’s ESOP and its business continuity. Highly involved in a company’s ESOP governance, ESOP trustees ensure legal compliance, manage the health of the ESOP finances, and look out for the plan participants' best interests. Find out more about the details and responsibilities of ESOP trustees here.

two women discussing corporate succession planning, securing business continuity

Understanding ESOPs in Succession Planning

Any business will necessarily have to undergo an ownership transition at some point in time. The success of a succession plan is highest when a business is prepared long beforehand. An ESOP can be one of the best succession plans to ensure business continuity. By contributing stock to the plan for its employees, a business invests in itself and its employees by means of an ESOP. Law requires that ESOPs have an ESOP trustee.

The Function of ESOP Trustees

Holding fiduciary responsibilities, an ESOP trustee has legal ownership of the company stock. The trustee’s role in succession planning is vital. An ESOP trustee provides support to the ESOP by:

  • Guaranteeing the ESOP’s formation complies with the legal rules set out by the Department of Labor (DOL) and the Internal Revenue Service (IRS).
  • Appointing an independent ESOP appraiser each year to determine a fair market value price of the shares.
  • Setting an annual ESOP stock price after reviewing the independent appraiser’s results.
  • Managing the company’s ESOP assets by monitoring operations and financial performance.
  • Ensuring that the ESOP abides by the requirements of the DOL and the Employee Retirement Income Security Act (ERISA).

An expert ESOP trustee will set up an ESOP for excellent corporate succession planning.

ESOP Trustees and Business Continuity

Succession planning can be one of the most emotionally challenging aspects of running a business, especially for a small, family business. Succession planning requires owners to take a step back and honestly look at what will be required to guarantee business continuity.   ESOPs are not a one-size-fits-all. ESOP succession planning takes communication, buy-in, and support from key staff members, and a particular attentiveness to company culture. In addition to the emotional and interpersonal challenges, a proficiency in the complex legal and tax requirements of an ESOP is needed. It is at the juncture of a unique company and the rigid legal system that an ESOP trustee can come in. An ESOP trustee can intimately work with a business to guarantee a legal, successful ESOP succession plan.

A Well Oiled Succession Plan

With proper guidance, ESOPs can be the most effective succession plan for a company today. An ESOP trustee will help you create a detailed succession strategy that ensures your business’s continuity is a well oiled machine.Learn more about ESOPs as a succession planning option or Aegis’s services as an ESOP trustee, by contacting Aegis’s experts today.

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DISCLAIMER: The Articles displayed on this website do not constitute legal advice, nor do they substitute for the advice of qualified professionals. While the Articles displayed on this website are designed to provide information regarding the subject matter covered, we cannot guarantee the accuracy of any statements contained therein. If any legal advice or expert assistance is required, the services of qualified professionals should be sought.

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