Employee Stock Ownership Plans

Employee Stock Ownership Plans (ESOPs) are the most common type of employee ownership. ESOPs, like 401(k)s, are qualified retirement plans. However, they are used to transfer all or part of the company’s shares to a trust administered on behalf of the employees.

ESOPs are a tax-advantaged structure that makes them a fit for companies over a certain threshold size. ESOP ownership can be anywhere from a small percent of the company stock up to 100%. If the ESOP owns at least 30% of the business at the close of a sale transaction, the seller may be able to reinvest the proceeds in a qualified replacement property and defer any capital gain on the sale, based on guidance from your tax advisor. Typically, the ESOP’s percentage ownership of the business is not subject to federal and state income tax. The stock held in the ESOP must be valued independently on an annual basis.

Download our ebook

Employee Stock Ownership plans

Size-dependent

Advisable for companies with 40+ employees, 750K+ in EBITDA and 2M+ in revenue

Tax positive

Significant tax benefits to the seller, business and employees

Highly regulated

A qualified defined-contribution employee benefit plan designed to invest primarily in the stock of the sponsoring employer

More expensive

Tax benefits above a certain size usually outweigh high setup costs and administrative costs

Free to employees

Employees don’t pay for their shares; instead, shares are distributed as a retirement benefit

Long-term wealth building

Financial rewards to employees accrue in an account accessible at retirement

To further strengthen an ESOP, Project Equity can help develop practices for participation, transparency and employee involvement in governance that help deepen ownership culture.

Learn how President and CEO Craig Danley encourages a culture of ownership at Delta Pipeline.

Want to learn more?

Project Equity can help your business create a culture of ownership.

Search
Search