ESOP Employee Stock Ownership Plans

 

 

An ESOP Employee Stock Ownership Plans is an IRC section 401(a) qualified defined contribution plan that is a stock bonus plan or a stock bonus/money purchase plan. An ESOP must be designed to invest primarily in qualifying employer securities as defined by IRC section 4975(e)(8) and meet certain requirements of the Code and regulations. The IRS and Department of Labor share jurisdiction over some ESOP features.

 

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Employee stock ownership, or employee share ownership, is where a company‘s employees own shares in that company (or in the parent company of a group of companies). Employees typically acquire shares through a share option plan. Such plans may be selective or all-employee plans. Selective plans are typically only made available to senior executives. All-employee plans offer participation to all employees (subject to certain qualifying conditions such as a minimum length of service).

Most corporations use stock ownership plans as a form of employee benefit.[1] Plans in public companies generally limit the total number or the percentage of the company’s stock that may be acquired by employees under a plan.[2] Compared with, for example, worker cooperatives therefore, employee share ownership may not confer any meaningful control or influence by employees in governing and managing the corporation.

Some companies, particularly private companies, use employee share ownership to support a company’s culture. Where all employees together own a substantial stake, and have a meaningful voice, in the company (or group) that employs them then this is called employee ownership.

A number of countries have introduced tax advantaged share or share option plans to encourage employee share ownership.

ESOP Employee Stock Ownership Plans’s are often spoke of but rarely used, this does not mean they aren’t effective when the proper situation arises.  Please feel free to ask for a consultation with one of our advisers to discuss if a ESOP makes sense for you?

California Business Benefits has a business alliance with a very reputable RIA advisory firm, The Financial Management Network, Inc. All securities transactions are carried out through FMN. http://www.fmncc.com/