Understanding ESOPs

Summary

Although almost 7,000 U.S. companies have an employee stock ownership plan (ESOP), many businesspeople are not well acquainted with them. ESOPs are often confused with stock option plans, which are something else altogether. They are not stock purchase plans; employees almost never buy stock through an ESOP. They do not require that employees run the company or even elect the board, unless companies want to structure themselves that way. Most people, in fact, would be well served by forgetting what they have heard or thought about ESOPs before starting to learn more about them. This book will teach you what ESOPs really are, how they work in both C and S corporations, what their uses are, what the valuation and financing issues are, what the steps to set them up are, and much more.

This book was originally published in 2008 and then updated in various respects for the 2013, 2014, 2016, and 2018 versions and now for this 2020 version. In this update, the old chapter on valuation has been replaced with a newly updated discussion of how valuation works in an ESOP context. The chapter on choosing consultants was extensively rewritten to address contemporary situations and concerns more clearly. In addition, other routine clarifications and updates were made throughout the book (for example, at the end of 2019 the SECURE Act increased the age 70½ threshold for minimum required distributions to 72, so the chapter on distributions was updated accordingly).