Voting rights and sale of stock

[smm]

I have a basic question regarding voting rights for non-publicly traded stock. Must voting rights be passed through for any of the listed transactions if voting rights do not have to be passed through under state law or are voting rights passed through only if non-ESOP shareholders would be able to vote on the listed transactions.

Follow-up question - an offer is being made to purchase 20% of a privately traded company's stock - ESOP owns a portion of the company so buyer will buy 20% of ESOPs stock. There are allocated and unallocated shares in the ESOP. Trustee will determine whether to sell unallocated shares. Who makes the decision to sell the allocated shares.

Thanks

[RLL]

Hi smm ---

IRC Section 409(e)(3) requires a "pass-thru" of voting rights to ESOP participants (and beneficiaries) only on a specified "corporate matter which involves the voting of such shares..." If there is no shareholder vote required (or solicited) on a matter, there is nothing on which the ESOP shares can be voted.

Unless the ESOP documents provide otherwise, the trustee would decide whether all ESOP-owned shares (both allocated and unallocated) are to be sold. It is not uncommon for an ESOP to provide for such a decision to be made by an ESOP fiduciary other than the trustee....such as an Administrative Committee or a non-trustee independent fiduciary.