Employee Stock Ownership (ESOP)

An ESOP is very similar to a profit-sharing plan. The company establishes a trust fund to which new shares are contributed of its own stock or cash to buy existing shares of stock. In addition, the ESOP can borrow money to buy new or existing shares, with the company making cash contributions to the plan to enable it to repay the loan. Within certain limitations the contributions to the trust are tax-deductible.