Legal Question in Business Law in Florida

Esop

Our firm established an ESOP as a means for funding the buyout of the two highly compensated officers. In essence the junior partners pre-paid their buyout. If the 2 high officers stay with the firm until one of the junior partners has left, should the junior partner be made ''whole'' for his portion of the buyout since were it not for the ESOP he would not had to contribute anything to the two's retirment payout?


Asked on 7/21/09, 2:39 pm

1 Answer from Attorneys

Sarah Grosse Sarah Grosse, Esquire

Re: Esop

In a corporation which utilizes an employee stock ownership plan (ESOP), the employees buy stock in the corporation. Beyond that basic fact, the way it works will vary by corporation and according to the resolutions adopted by the corporation.

In your situation, the junior partner OPTED to participate in the the ESOP and purchased stock in the corporation as an employee. The junior partner is whole -- he had money, now he has stock.

The corporation separately, through its board of directors, elected how the ESOP funds should be used, just as it would any other revenue of the corporation. Whether the corporation itself failed to follow its own resolutions is a separate matter. Even if the junior partner is a member of the board of directors, he wore a different "hat" when sitting on the board than when purchasing stock as an employee.

I can think of some very large corporations with ESOPs which have gone under due to board of director malfeasance in the past few years, leaving its employee stock holders losing their savings and retirement investments. It happens all the time. Buying stock is always a gamble, as an employee of the company or otherwise.

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Answered on 7/21/09, 4:11 pm


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