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ESOPs generally have participation, vesting and allocation features common to all qualified plans. ESOPs are subject to the distribution provisions of IRC Section 401(a)(14), but must also comply with the distribution and payment requirements of IRC Section 409(o).
An ESOP is an employee benefit plan that enables employees to own part or all of the company they work for. at fair market value (unless theres a public market for the shares). So, the employee receives the value of his or her shares from the trust, usually in the form of cash.
Because an ESOP is a Defined Contribution Plan, the ESOP is subject to all of the rules and regulations under Code 401(a).
ESOPs are employee benefit plans. ESOPs are company-sponsored employee retirement plans governed by the 1974 Employee Retirement Income Security Act (ERISA), the same law that governs 401(k) plans. Many ESOP features are intended to ensure that they are managed properly and fairly for all participants.
Costs to start up an ESOP are substantial, ranging from $15,000 to $100,000 and more. These costs include setting up a trust, which buys and holds ESOP stock. Valuations must remain current. An ESOP can buy only fairly valued stock, best appraised by a qualified appraiser.

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An ESOP must be designed to invest primarily in qualifying employer securities as defined by IRC section 4975(e)(8) and meet certain requirements of the Code and regulations. The IRS and Department of Labor share jurisdiction over some ESOP features.
They invest primarily in the securities of the sponsoring employer; may be used as a corporate financing technique; and may be leveraged or non-leveraged. ESOPs are subject to the annual reporting and audit requirements of ERISA.
An ESOP is a retirement plan providing benefits for both employees and employers alike. First created in 1974 under the Employee Retirement Income Security Act (ERISA), the ESOP is a qualified retirement trust that does not require any contributions from the employees.
ESOPs offer serious tax and investment benefits. Since ESOPs are tax-exempt trusts, profits earned by the company stay with the employees and thats only the beginning. An S-corporation that is 100% employee-owned doesnt pay taxes, which instantly translates to higher profit.
How Do You Start an ESOP? To set up an ESOP, youll have to establish a trust to buy your stock. Then, each year youll make tax-deductible contributions of company shares, cash for the ESOP to buy company shares, or both. The ESOP trust will own the stock and allocate shares to individual employees accounts.

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