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 is an Employee Ownership Trust (EOT)?

An Employee Ownership Trust (EOT) is a special kind of purpose trust designed to hold shares for the benefit of employees. The trust would acquire shares from the seller or sellers, with the intention of holding on to those shares for the long term. The employees do not have an equity interest in the trust as they would have in an ESOP. Instead, employees would typically get an annual share of the profits, which could be in the form of a dividend or a simple profit share.

The trust can own any percentage of the company. The trust is governed by a trustee who acts as the owner of the shares in the trust. There is also a trust protector whose sole function is to make sure that the purpose of the trust is carried out. In this case, the purpose of the trust is to continue ownership for the benefit of employees. The company can determine whatever governance rules it chooses for normal operations of the company.

There are no specific rules for which employees must benefit from the trust, how profits or dividends are distributed, or any other rights for employees. Companies instead draw up their own rules.

There are no special tax benefits for the seller, the company, or the employees in an employee ownership trust. Because there are no rules and no tax benefits, setting up these trusts is much simpler than an ESOP and the costs are typically one third to one-fifth as much.

For more details, see Using an Employee Ownership Trust for Business Transition.

Link to this FAQ Topic: Employee Ownership Trusts (EOTs)