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)

If an employee exercises a stock option in an S ESOP company, and holds it only for a short time before exercising, is the employee still taxable on a pro-rata share of corporate profits at the end of the year?

Yes, based on the number of days ownership of the shares was held and the percentage of total company stock. Because of this, it is usually impractical to use stock options in 100% S ESOPs because the employee might want a distribution to pay taxes-and the ESOP would then have to get a pro-rate distribution.

Link to this FAQ Topic: S Corporation ESOPs