If your business is incorporated and seeking an attention-grabbing compensation benefit, check out an employee stock purchase plan (ESPP). A recent survey of about 600 business leaders by Computershare, a global financial services company, found that 76% of respondents anticipated an increase in ESPP participation this year. But, as you might expect, there are complications to consider.
Who can sponsor one?
Under Section 423 of the Internal Revenue Code, a qualified ESPP is a formal written plan that enables employees of the employer corporation (or its parent or subsidiary corporation) to buy stock in that corporation. Thus, in practice, C corporations are the clearest candidates for such a plan.
S corporations may theoretically offer one, but their ownership and shareholder restrictions often make qualified ESPPs impractical. Other business entities (such as sole proprietorships, partnerships and limited liability companies), as well as other kinds of employers (such as nonprofits), should consider alternative compensation strategies.
