Planning for ESOP repurchase obligation is an important issue facing companies with an employee stock ownership plan (“ESOP”) when their stock is not traded on a public exchange. This liability is the result of the company’s obligation to pay participants for their allocated and vested shares when they separate from the company or when ESOP participants choose to exercise diversification rights under the terms of the ESOP. Repurchase obligation often represents a significant cash demand that can impact operating decisions as well as per share value. This article will review a number of common issues that lead to inaccurate estimates of future share price and the resulting impact on repurchase obligation studies.
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