Thursday, 12 December 2013 15:27

Common Questions about ESOPs

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Q: As an ESOP shareholder am I personally liable for the company’s debts?

A: No, your personal property is not at risk. Like regular stockholders, ESOP participants are not personally liable for the debts of the corporation.

Q: Who gets the profits in ESOP companies?

A: As stockholders, you get a portion of company earnings. Your portion could be kept in the company, in which case it increases the value of your stock. Or, your portion may be distributed to you in the form of a dividend, in which case you will receive a cash payment. The board of directors determines what portion of the earnings will be distributed to stockholders and what portion will be retained by the company.

Q: Can I vote my Stock?

A: It depends. In most cases, the trustee votes the stock because the stock is held in trust. However, federal law requires that voting rights be passed through to all ESOP participants on major issues such as liquidation, merger, or purchase offers. In some ESOPs, the trustee must vote all stock according to the participants’ instructions; in these companies, ESOP participants have essentially the same voting rights as typical owners of common stock.

Q: What happens if the company goes under?

A: If a company is dissolved, employee owners have a claim on the company’s assets after all debts of the company have been paid.

Q: Can I sell my stock?

A: Yes, though usually you sell it back to the company according to the ESOP agreement. ESOPs are pension plans so you do not usually receive the bulk of your stock until retirement. Federal law requires closely held ESOP companies to repurchase distributed stock from participants who have left the company. 

Source: The Ohio Employee Ownership Center (OEOC) (USA)

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