ESOP Companies Expand Globally

The economic realities of conducting business today are causing companies that sponsor employee stock ownership plans (ESOP Companies) to face the pressures of globalization, growth, diversification, competition, as well as management succession. In addition to these economic realities, the majority of the ESOP Companies in the United States are privately held corporations. As a result, these privately held ESOP Companies are obligated to repurchase their company stock held in the accounts of employee owners (ESOP Participants) who have become eligible to receive distributions from the ESOPs or to make contributions to the ESOPs to allow the eligible ESOP Participants to receive retirement benefits under the ESOP at the time that they become eligible for a distribution from the ESOP (ESOP Repurchase Liability Obligation).

In addition to managing their operations to meet the pressures of globalization and to satisfy their ESOP Repurchase Liability Obligations, ESOP Companies, like other non-ESOP companies, are constantly searching for new ways to become more efficient in their daily operations, to reduce overall costs, to enhance cash flow by increasing profits, and to increase cash reserves to remain competitive in a global marketplace. In response to these increasing pressures, many ESOP Companies have elected S corporation status for federal income tax purposes. By making the S election, these ESOP Companies have successfully accumulated large cash reserves as a result of the federal income tax savings resulting from the S election, and are looking for investment opportunities. These ESOP Companies are taking advantage of investment opportunities which include making acquisitions of, or entering into joint ventures with companies located outside of the United States, or outsourcing a portion of their business operations to companies outside the United States. As a result of ESOP Companies taking advantage of these investment opportunities, ESOP Companies are beginning to play an important role in the overall restructuring of businesses operating in countries outside the United States. Many of these countries are in the process of transitioning from an economy based on state-owned businesses to a market type of economy facilitated by these types of business investments (i.e., acquisitions, joint ventures, and outsourcing).

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