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stock options and ERISA


Guest R. Cheryl

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Guest R. Cheryl

Client is privately held company but thinking of starting some type of stock option or stock award plan to allow a broad range of employees (not just top management) to purchase stock shares and be the "owners" of the shares for purposes of receiving dividends and having an interest in any increases in value and even selling the shares (if they could find a buyer) with the company having rights of first refusal. The employees, however, will not otherwise be able to sell the stock back to the company while employed. Upon termination of employment, the company will buy-back the shares at the then "market value" provided the employee has worked a certain number of years, and at a somewhat reduced value if the employee has not yet worked the set number of years. I am concerned that this Plan could be subject to ERISA because there is no realistic opportunity to sell shares and realize any appreciation on the shares until termination of employment. (And concerned because I do not think the Plan will be able to easily meet all ERISA requirements.) Any thoughts as to whether this would be an employee benefit pension plan under ERISA due to deferral of payment for the shares being postponed until termination of employment? Any comments will be greatly appreciated. Thanks.

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One of the problems with stock plans for privately held companies is that the employees want to maximize the stock price and the family that is the majority owner wants to minimize the stock price for estate planning.

Are there any such conflicts???

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