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EMPLOYEE STOCK OWNERSHIP PLAN
THE ESOP
An employee stock ownership plan (ESOP) is a retirement plan similar in some ways to a profit sharing plan. Except rather than sharing profits with your employees, your business funds the Plan with tax deductible dollars, which are then used to purchase shares of ownership for the benefit of your employees.
Many owners find ESOPs to be useful in other ways besides simply providing a tax-advantaged retirement benefit for their employees. For example, there are many tax incentives for establishing an ESOP:
- An employee who sells 30% or more of their stock in a closely held corporation to an ESOP may defer their capital gains tax, if the proceeds are reinvested.
- If your business uses an ESOP to obtain a loan, you can deduct both the principal and interest payments on the loan.
- Employees have tax-deferred accounts in the ESOP
And besides its tax incentives, sponsoring employers also find ESOPs useful for increasing productivity from employees, business succession planning, and tax-advantaged corporate financing.