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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Who decides whether to sell when an ESOP company has an acquisition offer?

When CEOs receives an offer, they must first decide if it is serious, meaning it is especially for the company, it appears to be well financed, and there is reason to believe it may offer a significant premium. If these things are not all true, the CEO can simply not respond. If the offer meets these criteria, the CEO should inform the potential buyer that in a sale of an ESOP company, first the board has to make a decision whether the offer is worth considering and then, if it is, pass it on to the trustee, usually with a recommendation. If the company does not have an independent outside trustee, it should hire one.

The trustee will base its decision on what is in the best interest of plan participants as participants in a retirement plan, not as employees. In considering an offer, if the company does not want to be sold then the trustee would typically require that there be a significant premium for the value of the shares. The trustee will determine what an appropriate minimum premium would be based on how employees would fare if the stock were sold and reinvested in a conservative portfolio of investments as opposed to the employee remaining in the ESOP and getting both the anticipated appreciation on the shares as well as typically higher annual contributions from the company to the ESOP plus reallocations of forfeited shares that go into employee accounts. Usually, this means that the premium must be at least 30 to 50% above the most recent valuation.

Because of all of these potential roadblocks for potential buyers, it is very rare for ESOP companies to be sold when they don't want to be sold. On the other hand, there are situations where it is in the best interest of the company to sell either because of an exceptionally attractive offer or because the company's market situation is such that selling is the right choice.

If the trustee decides to proceed with an offer, the employees must be given the opportunity to vote on the sale if the sale is structured as an asset sale. That is not the case if the sale is structured as a stock sale, although the company can voluntarily pass through voting rights. A 2026 NCEO analysis showed that employees almost always vote yes on offers that the trustee recommends.

For more details, see the NCEO publication Responding to Acquisition Offers in ESOP Companies.

Link to this FAQ Topic: Governance, Fiduciaries & Compliance