Most privately held companies rely on physical share certificates which serve as the official record of ownership. This practice requires ESOP Companies to maintain share certificates in the name of the ESOP for the shares owned by the ESOP. Those share certificates are generally held by the trustee of the ESOP.
If you engage in transactions such as stock distributions which change the number of shares outstanding in the ESOP, the share certificates held by the ESOP need to be updated accordingly. If you retain an Institutional Trustee, they will generally remind you that the share certificates need to be updated when stock transactions occur. However, ESOP companies that are internally trusteed may overlook the fact that the share certificates need to be updated as transactions occur.
If you are an ESOP Company with an internal trustee, make sure to work with your attorneys to ensure that your stock certificates are up to date.