United States

Should you consider an employee stock ownership plan (ESOP)?

Frequently asked questions regarding ESOP consideration


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With baby boomers reaching retirement age, many closely held business owners need to evaluate business succession planning options, and employee stock ownership plans (ESOPs) are an attractive tool that should be considered as part of this planning process. ESOPs are qualified retirement plans that invest primarily in employer stock, which can benefit selling shareholders, the company and employees. Although ESOPs are not new, the benefits are not commonly understood.

This FAQ document provides insight into the main aspects of an ESOP to help parties begin to understand the nature of what it means to sell to an ESOP, to operate as an employee-owned company and to be a participant in an ESOP. You'll get answers to these and other important questions:

  • How does an ESOP work?
  • Why sell to an ESOP instead of an outside party?
  • When do participants receive their benefits?
  • Is an ESOP risky to the employees since it is not diversified?
  • How does a company benefit from an ESOP?
  • How does an ESOP affect day-to-day operations?


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