Frequently Asked Questions

Employee Ownership FAQs

Common questions about employee stock ownership plans (ESOPs), employee ownership trusts (EOTs), and other forms of employee ownership, from the basics to technical topics.

This FAQ is written primarily for business owners, managers, and advisors involved in setting up or running an employee ownership plan. If you're an employee at an ESOP company looking to understand your own benefits and rights, see our articles on Working at an ESOP Company and The Rights of ESOP Participants.

NCEO employee ownership FAQ hero (keyboard)

What sort of information will an ESOP valuation require?

There are no legal requirements for what must be included in an ESOP valuation. For the valuation to have merit, however, most appraisers will want three to ten years of financial statements, preferably audited or at least reviewed; three to five years of projected financial statements; interim statements as close to the valuation date as possible; a list of all lines of business, assets, off-balance sheet assets and liabilities; lists of main customers, suppliers, and competitors; legal agreements affecting the company and its owners (such as by-laws and buy-sell agreements); a list of assets, capital and depreciation expenditure records; major contracts; compensation schedules; a history of any stock sales and offers; and any other information that could affect how much the company is worth.

In addition, the appraiser will want to visit the company and talk to key people. In very complex cases, interviews with customers, suppliers, and industry experts could be in order, but most valuations will not take this step.

Failing to provide adequate information, or providing misleading information in a way that could affect value, is a serious offense that could lead to lawsuits by the participants or the government, as well as the loss of tax benefits and the imposition of penalties. ESOP fiduciaries are generally responsible to make sure the valuation consultants receive the proper information.

Link to this FAQ Topic: ESOP Valuation