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Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved


Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

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References in periodicals archive ?
For example, says Julie Govreau, "ESOPs absolutely are a good idea, (especially) for the owner of a small business looking to transition and the kids don't want to take over." ESOPs, she says "are a fantastic tool that allows for the continuity of the business."
ESOPs are employee stock ownership plans that own shares of corporations for the benefit of the employees of the corporation.
Some sellers can defer, or potentially even eliminate, the payment of capital gains taxes on the sale of stock to an ESOP, provided they meet eligibility requirements.
"An ESOP works well if the firm is profitable and growing, if ownership likes the company's culture and wants to preserve it, if owners wish to reward their employees and retain them, and if the owners want to realize significant tax benefits," said Gregory Hogan, a director at employee-owned SC&cH Group, who leads the ESOP advisory practice for the consulting, audit, and tax firm based in Sparks, Md.
In addition to such tax advantages, an ESOP provides a way for business owners to sell their shares at appraised value, if there are no other obvious buyers.
If the owner is willing to transfer the shares to a key employee for little to no consideration, the share transfer will likely be treated as compensation, so that it will become subject to income and employment taxes at its fair market value--making the traditional ESOP strategy unappealing for some clients.
As of 2015, there are an estimated 7,000 ESOPs covering about 13.5 million employees.
It remains to be seen exactly how ESCA will develop the framework for UAE companies to structure and implement their ESOPs. In the meantime, pending issuance of the Resolution, specific direction and input from ESCA is required before the implementation of an ESOP (for public and private joint stock companies) is possible.
So, the rest of this article will describe the basic ESOP structure and explain its numerous and considerable advantages, along with its primary disadvantage.
2015-224, reiterated that lesson in cases involving two Kansas corporations that used the same ESOP adviser.
Some of the growth in S ESOP employment is attributable to firms hiring more workers, and some of the growth is attributable to the rising popularity of S ESOPs generally.
Though conventional wisdom drives you to that conclusion, in reality a new breed of wealth creators has emerged ever since the employee stock option plan (ESOP) was pioneered by Infosys in the mid-nineties.