Employee Ownership Blog

It is clear that a company can use dividends paid on ESOP shares acquired by a qualifying ESOP loan to repay that loan. But what about dividends from stock previously acquired by the ESOP? According to IRS Technical Advice Memorandum 9516003, a company can use these dividends.

A $1 billion class action suit has been filed by several United Airlines employees who contend the ESOP overpaid for the shares (Summers v. State Street Bank). The suit alleges that true value of the shares was $88, not $198, the price assumed in valuing the concessions made by employees.

Republic Engineered Steels, one of the nation's largest majority employee owned firms, will soon do a public offering. The 5,000-employee company was saved from closing by an employee buyout and has since returned to profitability on an operating basis.

The difficulty of explaining stock ownership to employees was driven home recently by Steven Lear, who oversees the ESOP at U.S. Sugar, a majority employee owned company and one of the largest sugar processors in the world. An employee left with a $60,000 account balance.

Malaysia, one of the Southeast Asia's fastest-growing economies, will hold a conference on employee ownership in late August. The conference will explore the growing use of employee ownership in the country, occurring primarily through share purchase programs.

A group of high-ranking Chinese officials from the state privatization council will visit the U.S. in July to learn more about employee ownership.

The Internal Revenue Service has issued examination guidelines for its agents to use when assessing ESOPs. There are no surprises in the guidelines, which, in any event, do not have regulatory force. They do, however, provide a good overview of basic ESOP procedures.

In Eyler v. Commissioner, the U.S. Tax Court ruled that a taxpayer (Gary Eyler) must pay a tax of 100% of the transaction plus an additional tax of 5% per year for the five years the tax was delinquent on a $10,000,000 sale to an ESOP.

According to economic theory, an employee given a stock option would be "irrational" to sell the option too soon before it expires. Models for pricing the value of options, in fact, typically assume they are held until the expiration date.

Most employee ownership plans involve someone selling stock to an employee plan. Paul Merriman just gave it away. Merriman bought a tiny operation called HISCO, a Houston industrial supply company, in 1974 for $100,000.

John Case of Inc. magazine has been one of the outstanding chroniclers of the revolution taking place at work.

In one of the largest studies on ESOPs ever, two academics compared ESOPs to diversified plans.