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)

Does it make sense for companies to borrow money to fund repurchase obligations?

One strategy used to repurchase stock is to borrow funds, either through the ESOP or the company, to buy stock from departing employees when they leave. If the ESOP is repurchasing the stock, the stock must be distributed to the participant and then repurchased using the borrowed funds. If the after-tax cost of the money is lower than the rate of growth in the stock value over whatever delay period the company otherwise would have imposed, then the strategy is a net gainer for the company.

For more details on releveraging to find repurchase obligations, see The ESOP Repurchase Obligation Handbook

Link to this FAQ Topic: Distributions & Repurchase