ABA Business Valuation Services: Compliance & Financial Reporting
Employee Stock Ownership Plans (ESOPs)
ESOPs offer tax benefits to the sponsoring company and its selling shareholders. Although there may be restrictions, ESOP tax advantages include, but are not limited to, the following:
- Contributions to the ESOP of cash or shares may be tax deductible.
- Dividends paid on ESOP shares may be tax deductible.
- Principal as well as interest paid to banks on ESOP loans may be tax deductible.
- Selling shareholders are able to defer capital gains and taxes on shares sold to ESOP.
ESOP shares must be appraised every year by a highly qualified, independent business appraiser. Such valuations have many complexities owing to ESOPs’ unique features. ABA professionals value dozens of ESOPs, and would be pleased to assist you.
Financial Reporting Valuations (Intangible Assets And Goodwill)
Accounting rule changes from 2001 require that the purchase price in a transaction be allocated to the target company's tangible and intangible assets (SFAS No. 141); and that the resulting goodwill be examined every year and tested for impairment (SFAS No. 142). Some ABA professionals are extremely well-qualified in determining the fair value of intangible assets in connection with these rules.
Financial Reporting Valuations (Stock Based Compensation)
SFAS No. 123(R) requires companies to reflect the fair value (as opposed to intrinsic value) of options granted to employees as an expense to book income. Internal Revenue Code 409A provides an expansive definition of deferred compensation to include discounted compensatory stock options and stock appreciation rights. That is, it applies to stock options having an exercise price that is less than the stock’s grant date fair market value. This raises important issues as to how private, venture-backed companies value their common stock. To value the options, the fair value of the Company’s total equity (common and preferred) must first be determined. The total equity value must then be allocated to the components of equity (i.e., common, preferred, etc.). Some ABA professionals are well-qualified in applying the methods to allocate the Company’s total equity value (i.e., the current value method, the option-pricing method, and the probability-weighted expected return method).
