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.