By Marian Accardi, The Huntsville Times HUNTSVILLE, Alabama — Huntsville-based Torch Technologies recently achieved a long-time goal of full employee ownership, a move that created the opportunity for employees, directors and investors to commit to more than $1 million in charitable contributions.
The technical services company repurchased all outstanding stock owned outside its employee stock ownership plan (ESOP), the final step in completing the conversion to 100 percent ESOP-owned status. As of Dec. 30, all shares had been sold back to the ESOP trust.
“We’re quite excited,” said Torch CEO Bill Roark, because “we’ve been working for almost 10 years to be 100 percent employee owned.”
Full employee ownership had been a goal for the company since it was founded in 2002, he said. An ESOP, an employee benefit plan that offers company stock to employees, was set up in 2004, when the company had grown to 50 employees. It now has about 250 employees, with most of them in Huntsville.
This ownership structure, Roark said, “allows us – the employees – to control our own destiny” and lets them focus on the customers’ needs without having to be concerned with potential changes in ownership. “Now, our employees are the owners,” he said.
“We’re firm believers that employee owners are more committed to customer satisfaction than typical employees who do not have a vested stake in the outcome of the company.”
The ESOP transaction also created “a unique opportunity” for some shareholders, Roark said. The company found out Dynetics employees had committed to $3.2 million in charitable giving through the Community Foundation of Huntsville/Madison County, in a Huntsville Times article last July. Forty-three Dynetics employees used contributions of their Dynetics stock for donor-advised funds. The company had become a full employee stock ownership plan company, and shares of company stock held by employees were sold back to the ESOP trust.
The foundation seeks to increase the level of giving in the community by providing ways to donate with tax benefits.
“When the ESOP transaction came about, we wanted shareholders to be aware of the opportunity to set aside a portion of their good fortune for charitable giving,” Roark said. “Enabling shareholders to partner with The Community Foundation to donate stock seemed like the perfect opportunity.” The foundation was invited to make a pitch to Torch in early December.
An undisclosed number of shareholders have committed more than $1 million in charitable giving, with $744,000 of that amount contributed to the foundation through donor-advised funds, said Scott Parker, Torch Technologies’ chief operating officer. (Torch employee volunteers also run a nonprofit organization called Torch Helps that provides financial support to nonprofit organizations that help those in need.)
Contributions to the donor-advised funds have many advantages for the donor, according to Dr. James Gilbert, the Community Foundation’s board chair. “In this case in particular, closely held stock can be used to set up a donor-advised fund with the donor realizing a tax deduction for the fair market value of the stock. The donation helps to offset 2011 tax consequences resulting from the sale of other shares of stock.
The foundation invests the donor-advised funds, and they grow over time until they’re distributed, Gilbert said. Donors may make gifts at any time to any 501(c)3, church or government entity, he said.
“This (Torch gift) takes us from $6.2 million in assets to over $7 million in assets,” said Lynne Berry, the Community Foundation’s executive director.
As a 100 percent ESOP-owned company, all Torch company stock is now held in trust by the ESOP exclusively for the benefit of participants and beneficiaries, the company said. An ESOP structure creates a market for stock held by the original owners without requiring a sale to outside interests.
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