What is an ESOP?  - CLEO Skip to main content


Employee Stock Ownership Plans, or ESOPs, were designed as a way to put ownership into the hands of American workers. Begun in 1974 with the passage of federal laws, ESOPs comprise an estimated 11,000 companies in the US, employing an estimated 11.5 million workers. The laws enacted to encourage employee ownership allow certain incentives for lenders, selling owners, and ESOP companies. The tax advantages of ESOPs often make them a lower-cost source of corporate financing than conventional sources.

An Employee Stock Ownership Plan, or ESOP, is a qualified benefit plan with special features. These features make ESOPs quite different from other types of retirement plans. Created in 1974 under federal law, ESOPs must meet governmental regulations issued by the Department of Labor (DOL) and the Internal Revenue Service (IRS).