This month is Employee Ownership (ESOP) Month. “It is a celebration of the incredible spirit of employee ownership and an opportunity to educate employee owners about the tremendous benefits of employee stock ownership plans (ESOPs).” http://www.esopassociation.org/resources/resources_month.asp

You might be wondering, “What is an ESOP?” Well, an Employee Stock Ownership Plan (ESOP) is an employee benefit plan which makes the employees of a company owners of stock in that company. An ESOP is required by law to invest primarily in the securities (stock) of the sponsoring employer. Also a unique quality of the ESOP is its ability to borrow money - a leveraged ESOP may be a tool for corporate finance. Businesses having an ESOP are owned in part or whole by their employees.

Usually an ESOP is used to provide a market for the shares of departing owners of closely held companies, motivate and reward employees, or borrow money for acquiring new assets in pretax dollars so to take advantage of available incentives. Mostly ESOPs are used as an employee benefit or contribution to the employee.

Benefits to employees in an ESOP include having a vested interest and stake in their workplace, and tax benefits. For businesses participating in an ESOP the benefits may include tax deductions. However, ESOPs cannot be used by partnerships, most professional corporations, private companies must repurchase stock of departing employees in the ESOP, and when new shares are issued the share of existing stock is diluted.

You should seek advice from an attorney and CPA if you are interested in starting an ESOP for your business.

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