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 sellers use their qualified replacement property investments as collateral on a loan from a bank or other lender for loans for ESOPs to buy the company?

The seller may pledge stocks or bonds that are purchased as "qualified replacement property" as part of a "Section 1042" rollover transaction (a transaction in which owners sell to an ESOP owning at least 30% of a closely held company's stock). The replacement property is released as the loan is repaid. Lenders and sellers negotiate the terms of this transaction. Naturally, sellers try to pledge as little of it as possible.

For more details, see Selling to an ESOP and Financing the Deal and the ESOP Pre-Feasibility Toolkit.

Link to this FAQ Topic: Financing an ESOP