Employee Stock Purchase Plan - ESPP

What is an 'Employee Stock Purchase Plan - ESPP'

An employee stock purchase plan (ESPP) is a company-run program in which participating employees can purchase company shares at a discounted price. Employees contribute to the plan through payroll deductions, which build up between the offering date and the purchase date. At the purchase date, the company uses the accumulated funds to purchase shares in the company on behalf of the participating employees. The amount of the discount depends on the specific plan but can be as much as 15% lower than the market price.

BREAKING DOWN 'Employee Stock Purchase Plan - ESPP'

Depending when you sell the shares, the disposition will be classified as either qualified or not qualified. If the position is sold two years after the offering date and at least one year after the purchase date, the shares will fall under a qualified disposition. If the shares are sold within two years of the offering date or one year after the purchase date the disposition will not be qualified. These positions will have different tax implications.

RELATED TERMS
  1. Qualifying Disposition

    A sale, transfer or exchange of stock obtained through a qualified ...
  2. Dated Date

    The date at which interest begins to accrue on a fixed-income ...
  3. Trade Date

    The month, day and year that an order is executed in the market. ...
  4. Qualified Retirement Plan

    A plan that meets requirements of the Internal Revenue Code and ...
  5. Employee Stock Ownership Plan - ...

    A qualified, defined contribution, employee benefit (ERISA) plan ...
  6. Payroll Deduction Plan

    A contribution plan in which an employer deducts a specified ...
Related Articles
  1. Investing

    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. Investing

    Get The Most Out Of Employee Stock Options

    Many corporations encourage employees to participate in the company’s growth by offering them a piece of the pie. That means employee stock options.
  3. Retirement

    What's a Qualified Retirement Plan?

    Employers establish qualified retirement plans to help their employees save money.
  4. Financial Advisor

    Life Insurance Plans to Help Your Small Business Retain Employees

    How to use and design cash value life insurance plans as an incentive to help attract and retain key employees.
  5. Retirement

    Comparing Qualified And Non-Qualified Plans

    Qualified and non-qualified retirement plans are created by employers to benefit their employees.
  6. Retirement

    Plans The Small-Business Owner Can Establish

    Don't hesitate to adopt a smart plan for you and your employees.
  7. Managing Wealth

    Employee Stock Purchasing Plan

    Learn more about this program where employees can purchase copany shares at a discount.
  8. Financial Advisor

    Target Date Funds Can Be Customized: Here's How

    Target date funds will likely become a permanent fixture in the marketplace for the retirement plan sector. Here's how they have recently improved.
  9. Investing

    What is a Stock Option?

    An employee stock option is a right given to an employee to buy a certain number of company stock shares at a certain time and price in the future.
  10. Retirement

    This Is Why Your Employer Should Offer a 401(k)

    Understand the unique benefits that come with a small business offering a retirement savings plan such as a 401(k) to current and future employees.
RELATED FAQS
  1. What are employee share purchase plans?

    Find out what an employee stock purchase plan is and how it can be advantageous for an employer and an employee to participate ... Read Answer >>
  2. Which price of a stock do I end up purchasing?

    If I purchase a stock, it gives me the executed date and the stock sale price being X. Do I get the stock at that price X ... Read Answer >>
  3. How can I purchase stocks directly from a company?

    There are a few circumstances in which a person can buy stock directly from a company. The following is meant to cover some ... Read Answer >>
  4. Do I own a stock as of the trade date or the settlement date?

    When it comes to buying shares, there are two key dates involved in the transaction. The first date is the trade date, which ... Read Answer >>
  5. Why should I pay attention to a dividend's ex-dividend date?

    Understand the importance of the ex-dividend date as the critical date for determining which stockholders qualify to receive ... Read Answer >>
  6. How can I find out what date(s) I am supposed to be entitled to ex-dividends?

    Understand the various dates associated with payment of stock dividends and specifically how the determining ex-dividend ... Read Answer >>
Hot Definitions
  1. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  2. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  3. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  4. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  5. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  6. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
Trading Center