Key Features
- Contributions may be made
in stock
- May be used to buy out
owners of a business
An Employee Stock Ownership
Plan, or "ESOP," is a stock
bonus plan that is a type of
profit sharing arrangement under
which the employer makes
contributions in stock rather
than in cash. Under an ESOP, the
employer makes cash
contributions which are then
used to purchase company stock.
Many large publicly-held
companies have found tremendous
benefit from an ESOP. It tends
to get the employees aware of
and makes them a contributing
part of the profit of the
company. It provides additional
markets for company stock, and
the participants shareholders
rights are protected by laws.
ESOPs have been popular for
leveraged buyouts when a company
is sold to its employees. In
that case the ESOP borrows
enough funds from a lender to
complete the purchase of the
stock, and the company becomes
employee-owned. The ESOP repays
the lender from profits of the
company which are distributed as
dividends, and from cash
contributions which are made to
the ESOP.
This type of plan is appropriate
for a company which is publicly
held and for which employee
ownership is appropriate. It
tends to benefit employees based
upon the performance of the
company. |
