07-04-2012, 01:48 PM
ESOP- EMPLOYEE STOCK OPTION PLAN
ESOP12.ppt (Size: 1.11 MB / Downloads: 45)
An employee stock ownership plan (ESOP) is a way in which employees of a company can own a share of the company they work for. There are different ways in which employees can receive stocks and shares of their company. Employees can receive them as a bonus, buy them directly from the company, or receive them through an ESOP.
In the United States, ESOPs are a very common form of employee ownership. They have been growing in strength since about 1974. Around 11,000 companies have an ESOP in place, and nearly 8 million employees are involved in them.
When are they taxed?
The ESOP is not taxed on acquiring the shares.
You are taxed on the profit you make when you sell the shares or transfer them.
Transfer here refers to when you gift it to someone or transfer it to someone else under an irrevocable deed (they now own it, not you)
SALIENT FEATURES
It offers an option to the employee to purchase a certain amount of stock or shares in the future at a stated price or in the present at a price lower than the market price.
It is intended to procure and hold talented professional employees with the organization.
It creates mutuality of interest between the employees and the organization.
Participation in the employee stock option plan is voluntary in nature.
LIMITATION OF ESOP
Though voluntary in nature, some employees may feel they are being forced to join.
Their earnings at present and in future become subject to a greater risk.
This scheme can be used only by the profit-making companies.
Falling share prices result in loss to employees