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.

NCEO employee ownership FAQ hero (keyboard)

Can preferred shares be used in a leveraged ESOP?

Yes, provided they are convertible into common stock with the best voting and dividend rights of any class. Companies might use preferred stock because it allows a higher dividend to be paid. Because dividends can be paid outside of the 25% of pay rule, very highly leveraged ESOPs often use preferred.

Link to this FAQ Topic: Financing an ESOP