How To ... Create an employee stock-ownership plan

Creating an employee stock-ownership plan isn't easy. And it isn't cheap.

Just ask Ted Bill, the president of Pelican Wire Co. in Naples, who sold his family company to a trust that controls the employee stock ownership plan in 2008. “We spent somewhere in the neighborhood of $600,000 to $700,000,” Bill says.

Bill says it's important to decide what such a plan is designed to accomplish. “Before you get a whole bunch of people involved, get your long-term advisers together and really talk about what you want to do,” he says.

Find lawyers and bankers who specialize in these kinds of transactions. Bill says advisers in the Pelican deal included Will Stewart, with PCE Investment Bankers in Orlando; tax attorney Aaron Farmer of Farmer & Associates in Naples; and James Urbach, managing partner at Urbach Law Group in Jacksonville.

Remember that setting up an employee stock-ownership plan is a sale to employees. “You and the company are two different entities,” says Bill. “That's hard for some business owners.”

Each constituent in such a deal needs separate legal counsel. “You, the company and the owners each have to have their own financial and legal advisers,” Bill says. “Sometimes your estate planning is not in the best interest of the business.”

Even before an employee stock-ownership plan is established, it's important to think about the company's structure after such a deal, such as the composition of the board of directors.
“There are some real corporate governance things that you have to think through,” Bill says.

—Jean Gruss