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.

RELATED TERMS
  1. KSOP

    A qualified retirement plan that combines an employee's stock ...
  2. Employee Trust

    A trust fund established by an employer on behalf of its employees ...
  3. Qualified Retirement Plan

    A plan that meets requirements of the Internal Revenue Code and ...
  4. Employee Buyout - EBO

    A restructuring strategy in which employees buy a majority stake ...
  5. Active Participant Status

    Active-participant status is a reference to an individual's participation ...
  6. Plan Sponsor

    A designated party, usually a company or employer, that sets ...
Related Articles
  1. Investing Basics

    A Beginner's Guide to Investing in Company Stock Plans

    There are certain advantages to investing in your employer's stock but there are some potential drawbacks to be aware of.
  2. Professionals

    Types and Provisions of Qualified Plans

    Types and Provisions of Qualified Plans
  3. Taxes

    401(k) And Qualified Plans: Conclusion

    By Denise ApplebyA qualified plan is established by an employer to provide retirement benefits for employees and their beneficiaries. Qualified plans can come in a few different flavors. Let's ...
  4. Taxes

    401(k) And Qualified Plans: Types Of Plans

    By Denise ApplebyDefined-Benefit PlansUnder a defined-benefit plan, employees' retirement benefits are predetermined by their compensation, years of service and age. For example, the plan ...
  5. Professionals

    Types of Employee-Sponsored Plans

    Types of Employee-Sponsored Plans
  6. Taxes

    401(k) And Qualified Plans: Introduction

    By Denise ApplebyDuring retirement years, income for retirees usually comes from three primary sources: Social Security benefits The regular savings account of the retiree Retirement-plan ...
  7. Professionals

    Regulatory considerations

    Regulatory considerations
  8. Professionals

    Qualified Retirement Plans

    FINRA/NASAA Series 66: Section 4 Qualified Retirement Plans. This section discusses two types of qualified retirement plans, defined benefit and defined contribution plans.
  9. Professionals

    Employee Sponsored Retirement Plans

    Employee Sponsored Retirement Plans. This section deals with ERISA considerations and some basic tenets: Fiduciary Responsibility, Eligibility, Vesting and Communication
  10. Professionals

    Important ERISA Issues

    FINRA/NASAA Series 66: Section 4 Important ERISA Issues. In this section ERISA requirements: fiduciary responsibility, non-discrimination and Vesting,
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. What is the difference between qualified and non-qualified plans?

    Qualified and non-qualified retirement plans are created by employers with the intent of benefiting employees. The Employee ... Read Answer >>
  5. 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 >>
  6. Are Simple IRA plans subject to ERISA?

    Learn how the Employee Retirement Investment Security Act, or ERISA, guides the administration of Savings Incentive Match ... Read Answer >>
Hot Definitions
  1. Goodwill

    An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company ...
  2. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  3. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  4. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center