Drafting a Qualified Employee Stock Purchase Plan | Practical Law

Drafting a Qualified Employee Stock Purchase Plan | Practical Law

Employee stock purchase plans (ESPPs) offer eligible employees an opportunity to purchase shares of the granting company or an affiliate at a discount from the market price through payroll deductions.

Drafting a Qualified Employee Stock Purchase Plan

Practical Law Legal Update 0-585-3046 (Approx. 2 pages)

Drafting a Qualified Employee Stock Purchase Plan

by Practical Law Employee Benefits & Executive Compensation
Published on 21 Oct 2014 • USA (National/Federal)
Employee stock purchase plans (ESPPs) offer eligible employees an opportunity to purchase shares of the granting company or an affiliate at a discount from the market price through payroll deductions.
Employee stock purchase plans (ESPPs) offer eligible employees an opportunity to purchase shares of the granting company or an affiliate at a discount from the market price through payroll deductions. If the plan meets certain requirements under Section 423 of the Internal Revenue Code (IRC), then the employees are eligible to receive favorable tax treatment if they hold the shares purchased under the plan for a required period of time.
The reasons a company may want to adopt an ESPP include:
  • Promoting employee ownership.
  • Aligning the interests of employees more closely with the interests of shareholders.
  • Improving employee retention.
  • Delivering significant value to employees with little out-of-pocket cost to the company.
See Practical Law's Practice Note, Drafting a Qualified Employee Stock Purchase Plan for a discussion of the issues to consider when drafting a qualified ESPP. This Practice Note highlights IRC requirements and includes valuable practice points for practitioners.