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Q: Our company is considering two-part financing for an ESOP transaction. It would consist of a bank loan and a seller note. What’s unusual about what we are considering concerns the seller note. We are thinking of repaying the seller note with a life annuity (specifically, the company or the ESOP trust pays the seller a fixed dollar amount per month until the seller dies, at which point payments stop and the note is satisfied). Have you seen examples of this approach? Do you see any problems or concerns with it?

Q: We have just acquired another company. Can we provide their employees with prior service credit toward vesting? Are we required to do that?

Q: Our company was sold two years ago to our ESOP, and the owner deferred taxes on his capital gains by reinvesting in qualified replacement property (a “Section 1042” sale) on the sale. Now we have been approached by a buyer who would pay cash and give us more than two times the current fair market value. I have heard, though, that in a 1042 transaction if the stock held by the ESOP drops below 30% of the total shares within three years of the sale to the ESOP, the company must pay a 10% excise tax on the sale. Does this apply even if the company is sold?

Q: Our company would like to redeem shares if someone dies and recycle other shares from former employees. Can we do that?

Q: A closely held company has a shareholders’ agreement that provides for the company—an S corporation—to buy out the shares of a shareholder upon his or her death, and that repurchase obligation is funded by life insurance policies on each of the shareholders. What do companies normally do with those kinds of policies before they convert to an ESOP?

Q: Can a trust sell to an ESOP and take the tax deferral on the gains under Section 1042?

Q: Can a leasing company (also called a professional employer organization, or PEO) have an ESOP for its employees?

Q: What are the accounting implications of redeeming versus recycling shares?

Q: We are an S ESOP trying to decide on a dividend policy. How do most companies handle this?

Q: We are starting an account segregation policy in which the shares in the ESOP for departing employees will be converted into other investments until distribution. How should we communicate this change to employees? Our stock has done well, and we are concerned people might not be happy.