An employee benefit plan that enables employees to own all or part of the business
It is a tax-qualified Retirement Account
A Trust is set up to purchase shares of the company for the employees participating in the trust.
Employee gains ownership share in the business
Upon leaving the company, the employees shares are purchased by the business at Fair Market Value.
This type of retirement plan gives employees ownership and some control over the business which creates greater retention and productivity.
ERSOP (Employee Rollover Stock Option Plan)
An employee benefit plan that enables employees to own all or part of the business
Tax-qualified retirement plan that allows employees to rollover all or part of an existing qualified retirement account into the ERSOP where company stock is purchased.
The company must be a C-Corp
Sometimes referred to as Entrepreneur Rollover Stock Option Plan
Allows employee to rollover an existing IRA or 401(K) into a new business
An ERSOP uses the entrepreneur’s 401(k), IRA, or other qualified plans to fund the start-up. The ERSOP process looks something like this: establish a legal entity; get a taxpayer identification number and checking account for the entity; set up a trust and get a taxpayer identification number and a checking account for the trust; (hopefully) get a determination letter from the IRS specifying that the trust qualifies as an everyday employee stock option purchase plan (ESOP); roll the entrepreneur’s retirement accounts over to the trust checking account and then to the entity checking account; the entity transfers entity stock into the trust. At that point the money is in the business checking account and the business stock is in the ESOP.
