Glossary: Employee Stock Ownership Plan

Employee Stock Ownership Plan

Employee Stock Ownership Plan or ESOP or Stock Purchase Plan - An ESOP is a trust established by a sponsoring corporation to help make its employees partial owners of the company. It acts as a tax-qualified, defined-contribution retirement plan. The sponsoring employer contributes money to it that can grow tax-deferred and must be invested in the sponsoring employer's stock. Since the contributions are returned to the corporation as additional capital the sponsoring employer corporation benefits from increased cash flow, tax savings, and increased productivity from highly motivated workers while the employees gain access to the company's true financial records as shareholders and a share in the company's potential growth.

Disclaimer: The foregoing is intended to provide general information and may not be suitable in specific instances. The glossary information is not intended to be exhaustive, but rather to illustrate typical considerations. The material is provided with the understanding that it is not legal, accounting, tax or any other professional advice.

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