Your client, ABC, Inc. was incorporated in 1968, by Mr. William Findman. Currently he owns 92% of the common stock and his son, Steve, owns 5% and the other 3% is owned by long-term employees, who also serve on the Board of Directors. Mr. Findman is 85 years old and in good health. He continues to work every day in this highly regarded, debt-free corporation with taxable income averaging two million dollars over the past 10 years. ABC, Inc. has recognized over the years the value of a good employee, and many of the employees have been with the corporation for over 30 years. The average length of service for the 120 employees is 18 years.
Mr. Findman has asked about Employee Stock Option Plans (ESOPs). He is aware of the fact that you have not been involved with ESOPs but knows you will be able to educate him about the advantages, disadvantages and general knowledge needed to make an informed decision. He has asked that you research ESOPs: what are they, how they are formed, what is the structure, how are they executed, would it be viewed favorably by the employees, what are the advantages and the disadvantages, etc.,and write him a letter explaining in lay terms what he needs to know before pursuing the specifics.