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 kinds of securities can the seller reinvest in?

Stocks, bonds, debentures, warrants, or other debt or equity instruments issued by U.S. corporations that receive not more than 25% of their income from passive investment (that is, from income from investments in other things than their own business). U.S. companies are companies controlled by U.S. firms, not simply companies with operating units in the U.S. and listed on U.S. stock exchanges (Schlumberger or Food Lion, for instance, would be foreign firms). Mutual funds, U.S. government and municipal bonds, and municipal bonds, for instance, do not qualify, but banks and insurance companies do. The company can be public or private and can be owned by the seller to the ESOP. It cannot be owned by the company sponsoring the ESOP, however.

For more details, see Selling to an ESOP and Financing the Deal and the ESOP Pre-Feasibility Toolkit.

Link to this FAQ Topic: Tax Benefits to the Seller & Company