ESOP (Employee Stock Ownership Plan)
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A qualified retirement plan in which employees receive shares of company stock, often used to align employee interests with company performance or facilitate ownership transitions.
## ESOP (Employee Stock Ownership Plan)
An ESOP is a tax-qualified retirement plan that invests primarily in the employer's stock. The company contributes shares (or cash to buy shares) to a trust, which allocates shares to individual employee accounts.
### How It Works
- The company establishes an ESOP trust.
- Shares are allocated to employees based on tenure and/or compensation.
- Employees receive their shares when they leave the company or retire.
- The company can borrow money through the ESOP (leveraged ESOP) for expansion.
### Tax Benefits (US)
- Company contributions to the ESOP are tax-deductible.
- Employees pay no tax on allocated shares until distribution.
- S-corporation ESOP income can be tax-exempt at the entity level.
### Global Context
While ESOPs are a US legal structure, similar employee ownership schemes exist elsewhere: SIP (Share Incentive Plan) in the UK, PEE (Plan d'Épargne Entreprise) in France, and ESOW (Employee Share Option) plans in Singapore. About 6,500 US companies have ESOPs covering roughly 14 million employees.