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 voting rights do ESOP participants have?

ESOP participants have very limited required voting rights. In private companies, ESOP participants must be able to direct the trustee on the voting of allocated shares for sale of all or substantially all of the company's assets, merger, liquidation, recapitalization, reclassification, dissolution, or consolidation. In most ESOP companies, none of these issues ever come up except for the sale of all or substantially all the assets of the company. Note that ESOP participants do not have a required right to direct the trustee on votes regarding the sale of the company's stock in closely held companies.

Employees vote their allocated shares. Unallocated shares are voted by the trustee, unless the company by-laws direct that the trustee must mirror employee votes on allocated shares. Companies can choose to pass through voting rights on issues other than those required by law. In practice, when employees have voted on acquisitions offers in closely held companies, they have virtually always voted yes. In each case, employees have been voting on an offer the board and trustee believe is worth accepting.

In public companies, ESOP participants must receive the same rights as other shareholders. When vote pass-through is required, appropriate information on the issues must be provided, just as it would to other shareholders.

For details, see ESOPs and Corporate Governance.

Link to this FAQ Topic: Governance, Fiduciaries & Compliance