Employee Stock Ownership Plans

Morgan Lewis has one of the largest interdisciplinary teams of lawyers in the United States dedicated to advising companies, private equity groups, lenders, and fiduciaries involved with employee stock ownership plans (ESOPs). Our team is composed of lawyers with extensive backgrounds in the various legal disciplines—corporate, tax, insurance, financial institutions, employee benefits, securities, labor, litigation, and antitrust—that come into play in advising ESOP companies and in transactions involving ESOP companies.

The group is led by corporate lawyers who advise clients on mergers and acquisitions of ESOP companies and companies using ESOPs for shareholder liquidity, and counsel boards of directors of ESOP companies on their fiduciary duties. Regarding the Employee Retirement Income Security Act (ERISA), our team members advise companies and fiduciaries on regulatory matters affecting an ESOP, and counsel boards of directors of ESOP companies and fiduciaries involved in US Department of Labor (DOL) investigations or litigations.

We work to deliver strategic and creative ideas and solutions to complete ESOP transactions, resolve disputes, and address specific issues our clients face. Lawyers on our ESOP team are well versed in the rules and bodies of law that affect ESOPs:

Corporate members advise boards of directors, companies, private equity groups, mezzanine funds, senior lenders, and selling shareholders
Tax members represent companies in reorganizations, split-offs, Internal Revenue Code (IRC) Section 1042 transactions, and S corporation tax structuring
ERISA and labor members advise companies and trustees of ESOPs on regulatory compliance and matters handled by the Internal Revenue Service (IRS) and DOL
Litigation members advise companies and trustees involved in ESOP litigations and governmental investigations

Our team is very active in the National Center for Employee Ownership, The ESOP Association, the Employee-Owned S Corporations of America (ESCA), the National Association of Corporate Directors (NACD), the Association for Corporate Growth (ACG), and the Family Firm Institute (FFI). Team members hold leadership positions in these groups and participate in educational and lobbying efforts.

ESOP Corporate

Morgan Lewis counsels a variety of clients:

Boards of directors and companies
Private equity funds and mezzanine funds
Senior lenders
Trustees and ESOP ERISA fiduciaries
Management groups

Our team advises on mergers and acquisitions, spin-offs of divisions of ESOP companies, private equity firm purchases of or co-investment in ESOP companies, and acquisitions made by ESOP companies both in the United States and internationally. We handle shareholder liquidity transactions and management buyouts and recapitalizations, and counsel clients on hostile takeover bids and third-party sales. We also assist boards of directors in satisfying their corporate fiduciary duties, and counsel on ownership succession transactions and fiduciary insurance coverage review and recovery.

A key part of our service involves advising private equity companies in the purchase of existing ESOP companies, as well as advising ESOP companies buying out all or a portion of the ESOP through a recapitalization using senior, mezzanine, and private equity funds.

ESOP Litigation

Our team defends ESOP companies and trustees in litigation involving governmental parties and/or private parties, including “stock drop” litigation (lawsuits involving losses tied to a fall in ESOP share prices), and claims of excessive plan fees. We have served as lead counsel in several landmark ESOP cases. We also counsel ESOP clients in response to audits and investigations conducted by the DOL and the IRS.

The breadth of our ESOP litigation experience lets us effectively advise clients in defending against claims, and enables those clients to reduce the chances of future litigation.

ESOP ERISA Regulatory

We help clients comply with various legal requirements, and conduct due diligence investigations of the business and legal affairs of corporations whose stock trustees are negotiating to purchase or sell. With our guidance, trustees review valuation reporting and obtain adequate consideration and fairness opinions from financial advisors.

Our team assists with conducting pass-through votes on major corporate transactions, and helps ESOP companies maintain effective corporate governance practices. We counsel on how best to respond to investigations launched by the IRS, DOL, US Securities and Exchange Commission (SEC), and the National Association of Securities Dealers (NASD), and our lawyers review ESOP plans and related documents to ensure they have been adequately prepared and are in compliance with current regulations—all of which lowers the risk of future litigation.