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  • Question

    Can the company's ESOP contributions (awarding over ten years) be considered change of ownership, as the intent of the owners were to sell off and retire?


    Answer

    Yes, in fact, in many cases, a primary purpose of the employee stock ownership plan, or ESOP, is to transfer ownership of the company from the current owner(s) to someone else, in this case to the ESOP.  An ESOP is a type of employee benefit plan designed to invest primarily in an employer’s stock.  In general, the ESOP owns the stock for the beneficial interests of employees.  These plans, when in compliance with requirements of the Internal Revenue Code (IRC), are viewed as tools to:  reduce financing tax consequences; provide an efficient exit strategy for business owners and; incentivize employee performance.   So, in at least this sense, the sale of company stock by the current owner of the stock to the ESOP (trust) is a change in ownership.  But, if the ESOP is otherwise compliant with applicable laws and regulations, the government contract administration related consequences of this change in ownership are similar to those of any other sale or transfer of company stock.  

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