Press Room: Article
Fundamentals of ESOPs for S Corporations
Employee stock ownership plans (ESOPs) originated in 1974 with the passage of the Employee Retirement Income Security Act (ERISA). The intent of ERISA was to offer incentives for companies to allow employee participation in ownership.
An ESOP is considered a qualified retirement plan under the Internal Revenue Code (IRC). To establish an ESOP, a firm forms a trust that purchases the shares of a company from the owner and allocates the shares to employees as part of their compensation. ESOPs allow business owners to diversify their wealth and provide employee ownership in the company. Upon retirement, employees may sell their shares back to the ESOP or retain their ownership interest.