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

Frequently asked questions regarding ESOP consideration

Mar 30, 2015

Employee stock ownership plans (ESOPs) are qualified retirement plans that invest primarily in employer stock, putting ownership in the hands of employees and giving them a higher stake in the company’s success. Historically, ESOPs may have come onto the radar of a business owner when evaluating business succession planning options. However, ESOPs have also been sought by employers as an employee retention tool. The shift in focus on environment, social and governance (ESG) concerns creates another reason why an ESOP may be an attractive option. ESOPs are not new, but the benefits are still 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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