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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Do closely held companies that allow employees to buy stock in the company have to comply with securities laws?

Closely held companies that allow employees to purchase shares in the company are required to comply with securities laws. There are a number of exemptions, however, from federal securities law requirements. The most commonly used is Section 701, which exempts sales to employees of up to $1 million in a 12-month period, and more in some cases. Under this exemption as well as under most state laws, companies are still subject to anti-fraud requirements, meaning they have to provide sufficient objective information about the company and the sale terms for employees to make an informed decision. Companies need to work with a qualified attorney to make sure they are compliant.

For more information, see Direct Employee Ownership.

Link to this FAQ Topic: Direct Employee Ownership