July 2006

On March 8th, the Virginia General Assembly passed a bill allowing some professional corporations to be up to 100% ESOP owned under certain conditions. It will effective July 1, 2006. The bill is awaiting the Governor’s signature, which is expected.

The bill, HB 952 “Professional Corporations; Employee Stock Ownership Plans”, was sponsored in the Senate by Senator Walter Stosch, the Republican Majority Leader. The bill was sponsored in the House by Delegate Joannou, a Democrat. (A thirty-plus-year track record of bipartisan support for ESOP legislation continues!) Senator Stosch’s and Delegate Joannou’s motivation was to allow professional corporations the option to be perpetuated through the use of an ESOP. Prior to this law being passed, they were oftentimes forced to sell to out-of-state entities when key professional owners decided to retire, according to Ron Gilbert, President of ESOP Services, Inc, who worked with Senator Stosch in drafting the legislation.

Accounting, architectural, engineering, land surveyors and other professional corporations can be up to 100% ESOP owned, provided that the following conditions are met.

  1. The required minimum percentage ownership by professionals must be maintained using IRC 409p inside the ESOP as the criteria. Majority ownership is required for accounting firms in Virginia, two-thirds ownership by the other professional corporations covered under this bill.
  2. The trustees of the ESOP must be licensed professionals (the Board of Directors may appoint an independent trustee or fiduciary if a conflict of interest situation arises).
  3. Stock will not be distributed to non-licensed professional, with an “immediate buy-back” exception.

This bill will hopefully serve as a model for other states who wish to give their professional corporations an option of remaining independent.