we have a client that owns an s corp. their are 2 owners. the current owners want to possibly establish an ESOP. they have 3 key employees that are going to buy stock individually and will also be participating in the ESOP. the point is to have these 3 employees have controlling interest in the company. my question is who has voting rights on the stock owned by the ESOT? could these 3 employees be named as trustees of the ESOT and therefor control the voting rights? could the stock in the ESOT have non-voting rights?

any input will be much appreciated. thanks.

Ms. Gaskins - I suggest that you check the webpages of the two ESOP leadership organizations to get insight on this matter. They are The ESOP Association at www.esopassociation.org and The National Center for Employee Ownership at nceo.org. Both had a lot of information on ESOPs and S corporations.

As a practical matter, it is very common in ESOP companies that the trustee is a committee of internal management. These persons, however, must remember their duty to the plan, not to themselves when voting these shares.

Second, if this is a small company, you need to look at the new broadly-held rules of IRC Section 409(p) for a new plan these are immediately effective. The impact of this provision is critical to any analysis of the feasibility of an ESOP. Note, these rules don't prohibit the use of an ESOP, they may reduce the amount of benefit that these 3 persons can accrue under that ESOP or they may make C corporation status more attractive.