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)

What happens if an employee in an S corporation ESOP accumulates more than 10% (or 20% as a family member) of the deemed owned shares? Is this accrual counted as a prohibited allocation, or must an actual allocation occur for there to be a problem?

Existing ESOP account balances of persons owning more than the allowed amounts that are attributable to prior years constitute a "prohibited allocation" in a non-allocation year.

For details on S corporation ESOPs, see S Corporation ESOPs.

Link to this FAQ Topic: S Corporation ESOPs