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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Can an Employee Ownership Trust (EOT) be set up in an S corporation?

It would not be very practical to have an employee ownership trust (EOT) in an S corporation. Under S corporation tax rules, if a nontaxable entity, such as an employee ownership trust, is an owner of an interest in the company, that entity has to pay taxes on its share of earnings at the highest personal income tax rate. The trust does not have income to pay those taxes so the company would need to make a distribution to the trust in order to do that.

For more details, see Using an Employee Ownership Trust for Business Transition.

Link to this FAQ Topic: Employee Ownership Trusts (EOTs)