Employee Stock Ownership Plans (ESOPs) are the most widely used form of employee ownership in the U.S., offering a powerful way for business owners to exit while rewarding the people who helped build the company. ESOPs are tax-qualified retirement plans, like 401(k)s, but instead of investing in external funds, they hold shares of the company itself in a trust for employees. Over time, employees earn shares based on factors like compensation and tenure, building real ownership and long-term wealth.

ESOPs can own part or all of a company and are especially well-suited for mid-sized businesses with stable cash flow. One of their biggest advantages is the potential for major tax savings. For example, if an ESOP purchases at least 30% of the company, the seller may be eligible to defer capital gains taxes by reinvesting in qualified replacement property. Plus, in an S-Corporation that’s 100% ESOP-owned, the company’s profits are typically exempt from federal—and often state—income taxes.

To maintain fairness and regulatory compliance, ESOP-owned shares must be independently valued each year, and the plan must be managed in the best interest of employee participants. While setup costs can be higher than other forms of employee ownership, the financial and cultural returns are often well worth it.

ESOPs are more than just retirement plans—they’re a strategy for building resilient businesses, engaging employees, and anchoring jobs and wealth in local communities.