How an ESOP Works


From share acquisition to allocation to repurchase, learn the mechanics behind employee stock ownership plans.

Download our Step-by-Step Guide.

ESOPs are Defined Contribution Plans

The modern employee stock ownership plan was formalized by Congress in 1974. As a result, there are concrete rules that govern plan development, share allocation and ongoing management.

Join employee ownership expert Larry Kaplan for a video walk-through of the basic mechanics these unique business transition strategies. Read ahead to learn more about how leveraged ESOPs function and create meaningful benefits for all stakeholders.

Money in Hand

Who is the Buyer?

An employee stock ownership trust, representing at least 10 ESOP participants, buys company stock.

Price Tag

Who Sets the Price?

The price is negotiated with an institutional trustee, based on an independent valuation.

Dollar Bills

How is it Funded?

Sponsors borrow money on the trust's behalf, in the form of third-party financing and/or seller notes.

Distribution

Who Gets Shares?

Full-time eligible employees are allocated company shares, proportional to their annual compensation.

Growing Wealth

How is Stock Earned?

A portion of all ESOP shares is allocated annually; the shares vest within three to six years.

Check in Hand

How do Employees Cash Out?

Vested stock is sold back to the company, at a current valuation, when employees depart.

 
 
 

Want to Learn More? Let's Talk.

Schedule a free consult to learn more about leveraged ESOPs. See if your goals, and the benefits of employee ownership, are a good match.

FIND MORE RESOURCES

Our full ESOP library includes webinars, podcasts, and articles by our experts.

REVIEW OUR SERVICES

Our ESOP experts offer clients a range of expertise and real-world experience.

ASK QUESTIONS

Email or call us with your leveraged ESOP inquiries. Our advisors are ready to help.