Family Office Definition: Employee Stock Option Plan
Employee Stock Option Plan definition: ESOP is a type of retirement plan that allows employees (could be family members) to participate in business profits through the purchase of company stock. The retirement plan (a trust) holds company stock, and the eligible employees are beneficiaries of the plan. ESOPs are only permissible for C- or S-corporations (not partnerships). Plan purchases of company stock must be no higher than fair market value (as determined by an independent appraiser for non-publicly held companies). The proceeds from selling company stock must be reinvested in the U.S. securities market (government securities and mutual funds not permitted). ESOP’s qualify for federal income tax deductions for the company, as well as growing tax-free for employees until they elect to take a distribution. If 30% or more of company stock is sold for a C-corporation, capital gains tax may be avoided. ESOPs are appropriate for transitioning business ownership and not selling the business.
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