What effect does an ESOP have on any future sale negotiations?
If an ESOP acquires stock in a C Corporation “tax-free” rollover transaction, and then sells that stock within three years, a 10% excise tax based on the value of the stock sold by the ESOP is payable. After three years have expired, the ESOP is normally treated like any other shareholder in a transaction, that is, the ESOP is bought out. When the sale is a stock sale, there is normally no requirement to have ESOP participants vote their stock on the sale. The ESOP trustee votes the shares when it is sale of substantially all, or all, of the assets of the company, then the vote pass through is required.
