Hirschler Fleischer provides sound compliance counsel to clients with respect to their employee benefit plans, both welfare and pension, which are subject to the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). The ERISA Practice Group is equipped to represent clients in ERISA based Department of Labor (DOL) audits. The Group also assists clients in the pre-audit context to process DOL Voluntary Self-Correction filings. Hirschler Fleischer attorneys have knowledge and experience in filing prohibited transaction exemption requests with DOL. Similarly, they assist venture capitalists in navigating the "plan asset" rules as they impact investments made by employee benefit plans in these funds. The Group also functions as an integral part of the Employee Stock Ownership Plan (ESOP) team, since the very nature of implementing an ESOP requires qualification under ERISA rules.
ESOPs were specifically designed to foster broad-based employee ownership. They create an ownership culture among the company's employees to enhance recruiting, retention and productivity. To encourage the use of ESOPs, numerous tax incentives apply to both ESOP companies and sellers of stock to ESOPs.
ESOPs can be used in a number of situations to satisfy a client's needs. A typical situation involves a middle market business whose owner is ready to retire. An ESOP can serve as a ready purchaser and create a market for the seller's shares of stock where a market may otherwise not exist. The sale of the stock can result in a deferral of gain for the selling shareholder. Both the principal and interest of the debt incurred to pay the selling shareholder may be deducted by means of tax deductible contributions to the ESOP.
An ESOP may also serve as a corporate financing vehicle. The company borrows money, loans it to the ESOP, and the ESOP uses the proceeds to purchase additional shares of stock of the corporation. The company then uses the proceeds of the capital infusion for any valid corporate purpose. Again, both principal and interest on the loan are deductible through contributions to the ESOP.
S corporation ESOPs may create a powerful cash flow advantage. An S corporation owned 100% by an ESOP can shield the income flowing through to the ESOP - a tax-exempt entity - from current taxation.
These advantages, and the fact that more and more corporations are becoming aware of the possibilities of using an ESOP to achieve both shareholder and corporate objectives, have resulted in a larger number of employers implementing ESOPs.
The attorneys of Hirschler Fleischer's ESOP practice group reach beyond conventional concepts to deliver creative and effective solutions to both owners of privately held companies selling their business or completing estate and corporate management succession planning, as well as to fiduciaries, lenders, and management groups involved in sophisticated ESOP transactions. Our services include structuring and implementing innovative transactions and providing ongoing counsel to ESOP companies. The HF ESOP practice group combines a multi-disciplinary team of attorneys with substantive expertise in a variety of areas of law and business, including corporate finance,, taxation, securities, lending and estate planning. Please contact one of our practice group members for further information as to how an ESOP may benefit your company.