Employee Stock Ownership Plan - ESOP

What is an 'Employee Stock Ownership Plan - ESOP'

An employee stock ownership plan (ESOP) is a qualified, defined contribution, employee benefit (ERISA) plan designed to invest primarily in the stock of the sponsoring employer. ESOPs are "qualified" in the sense that the ESOP's sponsoring company, the selling shareholder and participants receive various tax benefits. ESOPs are often used as a corporate finance strategy and are also used to align the interests of a company's employees with those of the company's shareholders.

BREAKING DOWN 'Employee Stock Ownership Plan - ESOP'

Employee stock ownership plans can be used to keep plan participants focused on company performance and share price appreciation. By giving plan participants an interest in seeing that the company's stock performs well, these plans are believed to encourage participants to do what's best for shareholders, since the participants themselves are shareholders.

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RELATED FAQS
  1. Is an ESOP a qualified retirement plan?

    Acting as a qualified stock bonus plan as well as a form of a retirement plan, an ESOP has been a qualified retirement plan ... Read Answer >>
  2. What are the IRS regulations regarding a share premium account?

    Read about the tax treatment, or lack thereof, for a corporation's share premium account, also known as the additional paid-in ... Read Answer >>
  3. What are my main rights as a 401(k) plan participant?

    Learn how under ERISA, 401(k) plan participants are guaranteed several important rights, including protections of their plan ... Read Answer >>
  4. How does a defined benefit pension plan differ from a defined contribution plan?

    Learn the differences between defined benefit plans and defined contribution plans when reviewing employer-sponsored qualified ... Read Answer >>
  5. Based on the Employment Retirement Income Security Act (ERISA), a retirement plan ...

    The correct answer is b. With regard to eligibility, the plan must cover all employees 21 and older who have worked for the ... Read Answer >>
  6. What is the difference between a 401(k) plan and a 457 plan?

    Discover how 401(k) plans are privately offered employee retirement plans, while 457 plans are typically available to public ... Read Answer >>
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