Frequently Asked Questions

Employee Ownership FAQs

Common questions about employee stock ownership plans (ESOPs), employee ownership trusts (EOTs), and other forms of employee ownership, from the basics to technical topics.

This FAQ is written primarily for business owners, managers, and advisors involved in setting up or running an employee ownership plan. If you're an employee at an ESOP company looking to understand your own benefits and rights, see our articles on Working at an ESOP Company and The Rights of ESOP Participants.

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Are standard severance and/or change-of-control payments in an employment agreement considered synthetic equity under the Section 409(p) anti-abuse regulations?

Standard severance or change of control payments are generally not considered deferred compensation because there is no deferral from the event that creates the compensation to the payment of the compensation. At the margins with a very large payment, however, there could be 409(p) issues on the general principal of "avoidance" schemes. Also, if the change of control payment is pegged to the amount of the sale, it might fundamentally be an option and therefore synthetic equity on that basis.

Link to this FAQ Topic: S Corporation ESOPs