Using an employee stock ownership plan (ESOP)  as a vehicle for a company owner to sell to family members or their management team has been made more expensive — and may become a lot less popular — after the settlement of a lawsuit between the U.S. Department of Labor (DOL) and First Bankers Trust Services Inc.

Through a civil claim, the DOL accused First Bankers of breaching its fiduciary duties by approving the sale of 49 percent of Maran Inc., a private label denim manufacturer, to the Maran ESOP (employee stock ownership plan), for which it served as independent trustee.

A settlement in the case agreed to on Sept. 21 effectively adds to the rules that must be followed by other ESOPs: Trustees that establish ESOPs must now demonstrate that there was proper consideration given to the ESOP as a buyer of a company and/or that it has effective control; such demonstration might include establishing a board that includes an independent director or, alternatively, receiving a discount in the purchase price.

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