Does an ESOP Mean Losing Control? | SG&F Law
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Does an ESOP Mean Losing Control?

Author: SG&F Law

Many business owners who are considering an ESOP (Employee Stock Ownership Plan) fear that their influence and control will disappear when they sell their shares to the ESOP.

After devoting the effort, energy, resources, blood, sweat and tears required to build a successful business, owners often struggle to “let go.” Or they want to continue participating in discrete elements of the business. Or they need a gradual transition to ensure that the business will survive and thrive without their full time management.

Having spent more than a dozen years as an ESOP Attorney,  I’ve heard business owners voice these concerns in a variety of ways:

  • Will I lose control over day-to-day operations?
  • Will I forego influence on strategic planning?
  • Do I still have a say in hiring and firing?
  • Can I still serve on the Board of Directors?

 

The answer to most of these questions is “it depends.”

But whatever their concerns, owners can rest assured that the ongoing operations of the company need not change with the formation of an ESOP.

The ESOP becomes a shareholder of the company, nothing more. As such, the ESOP, through its trustee, holds all the rights and duties of the previous shareholder, including the obligation of voting for the directors.

Shareholders do not have the right to dictate or restrict day-to-day operations, the purchase of equipment, strategic planning, or hiring and firing decisions. Those determinations are made by a company’s Board of Directors and officers.

Given the importance of these issues and the complexity of the decision, it is essential to explore all facets of an ESOP. We suggest seeking sound advice from experts to determine whether an ESOP is the right succession and liquidity plan for your business.

To learn more about ESOPs, please visit our Knowledge Center on SES Advisors.com