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)

How do most companies handle ESOP repurchase obligations?

In about two-thirds of ESOP companies, shares are repurchased by the company and, in most cases, recontributed to the ESOP. About one-third of companies contribute cash to the ESOP with the trust buying back the shares. If the company buys back the shares, it gives it the opportunity to make recontributions of the stock based on compensation targets rather than how many shares are repurchased that year. Cash used to buy back the shares is not deductible, but the contributions of the shares to the plan are. This is not an issue for 100% ESOPs because they do not pay taxes.

For more details, see The ESOP Repurchase Obligation Handbook.

Link to this FAQ Topic: Distributions & Repurchase