ESOP: "Employee Stock Ownership Plan"

An ESOP is a defined contribution employee benefit plan, technically a stock bonus plan that can borrow money.

ESOPs can be used for a variety of purposes and can give employees as a group anywhere from 1% to 100% ownership of a company. (However, 30% employee ownership is needed to qualify for tax savings or the 1042 rollover.) Owners can use an ESOP to exit their company at fair market value, assure on-going management and reward employees – all without paying capital gains tax.

To establish an ESOP, a company sets up a trust fund, into which it contributes new shares of its own stock or cash to buy existing shares.

The ESOP trust is governed by trustee(s), selected by the company's Board of Directors.

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