What is an ESOP?

An Employee Share Ownership Plan (ESOP) allows employees, who qualify, to purchase shares in their employer’s company, with or without the monetary assistance from the company.

Employees can acquire shares, and ownership through an ESOP that can range from 1% to 100%. An excellent method for small business owners wishing to retire and sell their business.

The key aspect is that employees have an ownership stake in the company they work for, and share in the risks and rewards that accrue to it.

Currently, there are four types of ESOPs in Canada:
1) ESOPs started by employers to reward employees for their effort in making the company successful.
2) ESOPs started by public companies to reward key employees for their efforts, then expanded to all employers through matching share purchase programs.
3) ESOPs started due to financial crisis, utilizing provincial ESOP legislation. A relatively recent development, these are used mainly to save jobs.
4) ESOPs started by employers and/or employees utilizing current tax laws and provincial legislation – some are for companies in crisis as well as healthy companies.

Author: Warren Orlans

Welcome to inTAXicating. inTAXicating has been published since 2008 to provide clarity around Canadian taxation issues, primarily related to the Canada Revenue Agency. As the primary author, Warren Orlans, has over 20-year's experience in the taxation industry, 11 of them working for the Canada Revenue Agency (CRA), and 7-years working in the private sector Managing the tax departments for large financial institutions. If you have a collections, compliance or audit issue with the CRA, inTAXicating is the place you need to contact. inTAXicating works in strategic partnership with amazing accountants, tax lawyers, insolvency practitioners, mortgage brokers, debt counselling experts and much more. If you have a tax question, email it to info@intaxicating.ca or to intaxicatingtaxservices@gmail.com.

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