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Employee Stock Ownership Plan

An employee benefit in which employees are issued or sold shares in the publicly-traded company for which they work after a certain number of days of employment. ESOPs are designed to give employees equity in the company to boost morale and thereby improve productivity. ESOPs receive various tax benefits, and may give employees a greater say in the election of the board of directors.


Employee stock ownership plan (ESOP).

An ESOP is a trust to which a company contributes shares of newly issued stock, shares the company has held in reserve, or the cash to buy shares on the open market.

The shares go into individual accounts set up for employees who meet the plan's eligibility requirements.

An ESOP may be part of a 401(k) plan or separate from it. If it's linked, an employer's matching contribution may be shares added to the ESOP account rather than cash added to an investment account.

If you're part of an ESOP and you leave your job, you have the right to sell your shares on the open market if your employer is a public company.

If it's a privately held company, you have the right to sell them back at fair market value. The vast majority of ESOPs are offered by privately held companies.


References in periodicals archive ?
The original concept of the ESOP was to promote stock ownership among rank and file workers of US companies to make the capitalist system stronger, and lawmakers became convinced that tax benefits "should be permitted and encouraged under employee benefit law" (NCEO, 2005).
Abello anticipates even more Wells Fargo middle-market business owners will take advantage of ESOPs as an exit or retirement strategy.
There is some latitude in how an ESOP transaction can be structured, as opposed to more traditional transactions.
Demographic changes taking place make this a very attractive time to have the ESOP discussion with your current and prospective business owner clients.
Another concern is that the ESOP requires disclosure of confidential information about the company and the compensation of the principals.
From the earliest days until 1996 the number of C corporation ESOP installations grew steadily.
This is true particularly where the ESOP company is an S corporation.
The main reason for this growth is that ESOPs succeeded in increasing employee loyalty and commitment to an organisation, which resulted in improving corporate financial transactions significantly," the report stated.
Numerous Benefits An ESOP can provide a variety of benefits for owners, companies, and employees:
You can cash out all of your shares at once, or you are allowed to sell your shares to an ESOP gradually over a period of years.
Corporate deductions can also be secured when dividends are used to make payments on an ESOP loan.