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 employees demand stock in the employer when an ESOP is terminated or the company is sold?

Technically, employees must be given the right to demand their distribution from an ESOP in the form of employer stock unless the company is a financial institution or an S corporation, or the company's by-laws or articles of incorporation state that "all or substantially all" of the company's stock must be owned by employees. Also, a plan that is terminating may be amended to eliminate employer stock as a distribution form if the employer does not have another plan that provides for the distribution in employer stock. While there are some other exemptions from this rule, including where the buyer exchanges its stock for the seller's stock, it is more a theoretical than a practical problem.It is prudent, however, to raise this issue with employees beforehand to see if any will make this demand. If that is the case, an ESOP attorney should be consulted to find the most practical way to prevent the demand from impeding the termination.

For more details, see Creating a Sustainable ESOP Distribution Policy

Link to this FAQ Topic: Distributions & Repurchase