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 escrows or earnouts be used as part of a sale of an ESOP company to an acquirer?

Often, the buyer will want to include some kind of escrow and/or earn-out. Trustees need to assess the fairness of such proposals. If either apply, the ESOP may be maintained until the final payments are made. Alternatively, Private letter ruling 200420036 allows the ESOP to be terminated and employees to receive a scrip payment for their proportional interest in the escrow.

For more details, see the NCEO publication Responding to Acquisition Offers in ESOP Companies.

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Link to this FAQ Topic: Distributions & Repurchase