BizSugar.com › Finance › ESOP vs. 401K Plan – A Comparison Worth Exploring

When a business owner begins to think about selling his business he often wonders if an Employee Stock Ownership Plan (ESOP) is an appropriate financing vehicle and how it may be different from a 401(k) plan. It’s a comparison worth exploring; but first it’s a good idea to understand the origin of ESOPs and how they work.

How Do ESOPs Work?

Employee Stock Ownership Plans (“ESOPs”) are federally qualified employee benefit programs governed by U.S. law. The original ESOP legislation was drafted by John Menke in 1974, and since then more than 25 additional laws have been passed to promote and broaden the benefits of ESOPs. To date, more than 22,000 U.S. companies have reaped the benefits of an ESOP program.