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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What are the ESOP administrative committee's legal constraints in deciding how to direct the trustee on voting or tendering shares if there is an offer to buy the company. ?

Legally, the ESOP administrative committee must make any decision as to the voting or tendering of shares (other than those for which the plan provides a pass through to participants) based on the best interest of plan participants as participants. In other words, the ESOP Committee (or any other fiduciary) cannot consider the employment interests of participants. Instead, the ESOP administrative committee must look to the long-term value of the accounts in the plan. Many consultants would argue it may also consider the preservation of employee ownership as part of the legitimate interests of participants, provided this is spelled out as a plan purpose. The ESOP administrative committee cannot make a decision that is primarily for the benefit of other parties, such as management or other owners.

For more details, see ESOPs and Corporate Governance.

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Link to this FAQ Topic: Governance, Fiduciaries & Compliance