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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Does converting from a C corporation to an S corporation require a change in the valuation of ESOP shares?

It should not change the value. As an S corporation with an ESOP, there is clearly a substantial tax advantage that could enhance future cash flows. On the other hand, an appraisal is looking at what a willing buyer would pay, and unless that buyer was an S corporation, it would not be able to take advantage of this tax benefit and so would not take it into consideration. So the general consensus is that the value would not change.

For more details on valuation, see The Fiduciary’s Guide to ESOP Valuation

Link to this FAQ Topic: S Corporation ESOPs