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 options for ESOP companies for shares repurchased from former employees ?

There are many options for the use of shares repurchased from former employees in an ESOP:

If companies use cash in the ESOP to buy back shares, the shares are reallocated to all participants using the company’s normal allocation formula.

If the company buys back the shares, they can be put into treasury for future use, they can be retired, or they can be recontributed to the ESOP. Many 100% ESOPs buy back shares at the company level before recontributing them because there is no tax advantage to putting money into the ESOP to buy back the shares because 100% ESOPs pay no tax. Buying back shares at the company level and recontributing them allows companies to recontribute shares based on a percentage of compensation target rather than based on how many shares leave the plan that year.

For more details, see Creating a Sustainable ESOP Distribution Policy

Link to this FAQ Topic: Distributions & Repurchase