Employee Stock Ownership Plans (ESOP)

Sadis has earned national recognition for its ESOP (employee stock ownership plan) practice. Our clients include business owners, corporations, and internal and external trustees and fiduciaries, which we have represented in a wide range of transactions involving business successions, supplemental employee benefit plans and tax-free recapitalizations.

Our lawyers work closely with banks providing trustee services to the plan and collaborate with the lawyers and advisers to the owners of closely held businesses. This team approach achieves results that make business sense while complying with the complex and technical aspects involved.

What is an emloyee stock ownership plan (ESOP)?

ESOP Meaning: An ESOP is a qualified retirement plan that invests primarily in the employer’s stock, providing employees with an ownership stake in the company.

These plans serve as both a retirement benefit and a corporate finance strategy. For business owners, ESOPs offer a powerful tool to sell their business while maintaining legacy and incentivizing employees. ESOPs are governed under ERISA and require strict regulatory adherence, making legal guidance critical from start to finish.

Key considerations include:

• Differences between ESOPs and stock options
• Governance and fiduciary obligations
• Benefits to employer (e.g., tax deferral, retention)
• Benefits to employees (e.g., retirement equity)

Due to these and other tax incentives, and when used in conjunction with various recapitalization and financing strategies, ESOPs offer business owners an attractive alternative, on an after-tax basis, to sale of the business to a third party.

Benefits of ESOPs

• Companies completely owned by an ESOP are not subject to federal and state income taxes, in most states, if the Company has an S corporation election.
• Shareholders who sell privately held stock to an ESOP can defer the income on the sale if the proceeds are reinvested in U.S. stocks and bonds, if the ESOP owns at least 30% of the Company after the sale, under Section 1042 of the tax code.
• ESOPs are the only type of pension plan that can borrow money from the sponsor corporation. Contributions to ESOPs for repayment of the loans are typically structured to be tax deductible.
• Dividends paid on stock held by ESOPs are tax deductible under Section 404(k).

 

Helpful ESOP Links

Federal Tax Substantive Law Sites

• The ESOP Association
• National Center for Employee Ownership
• Employee Ownership Foundation

 

ESOP TRANSACTIONS & STRUCTURING

Our attorneys support clients through the structuring, negotiation, and execution of ESOP transactions. Sadis delivers legal solutions that align seller goals, tax outcomes, and fiduciary duties.

Transaction services include:

• Feasibility assessment and stakeholder coordination
• Leveraged vs. non-leveraged transaction strategies
• Coordination with valuation firms and independent trustees
• Drafting and negotiating transaction and trust documents

We collaborate closely with financial advisors, lenders, and accountants to ensure efficient execution and tax-optimized outcomes.

 

ESOP REGULATORY COMPLIANCE & ERISA GUIDANCE

Operating an ESOP requires strict adherence to ERISA regulations, fiduciary duties, and annual compliance mandates. Sadis provides proactive legal oversight for plan sponsors, fiduciaries, and corporate boards.
Our services cover:

• 404(k) and other ESOP-specific retirement plan rules
• IRS and DOL reporting and disclosure obligations
• Fiduciary training and risk mitigation
• Regulatory audits, plan restatements, and plan amendments

With Sadis, clients benefit from an experienced legal team that anticipates compliance challenges before they arise.

 

ESOP DISPUTES, AUDITS & LITIGATION

Sadis represents corporate clients, boards, and fiduciaries in ESOP-related litigation, investigations, and shareholder disputes. Our litigators have defended valuation-based claims, fiduciary breach allegations, and actions brought by regulatory agencies.

Litigation services include:

• Disputes over stock valuations and transactions
• DOL and IRS investigations
• Fiduciary liability defense
• Negotiated resolutions or court litigation

 

WHY SADIS & GOLDBERG FOR ESOP COUNSEL

Our firm stands out for its deep transactional and litigation experience, multidisciplinary legal approach, and client-first mindset. We serve a national client base seeking tailored ESOP legal solutions.
Key differentiators:

• Trusted ESOP counsel to middle-market businesses
• Tax-smart transaction guidance
• Full-service support from ERISA to litigation
• Collaborative ecosystem with valuators, trustees, and financial advisors