{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/718/40/#05-overview-and-background","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"718","topic_title":"Compensation—Stock Compensation","subtopic":"718-40","subtopic_title":"Employee Stock Ownership Plans","section":{"number":"05","label":"05 Overview and Background","anchor":"05-overview-and-background","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"718-40-05-1","para":"05-1","html":"
This Subtopic provides guidance to entities that utilize employee stock ownership plans. It includes the following Subsections:
  1. a
    General
  2. b
    Leveraged employee stock ownership plans
  3. c
    Nonleveraged employee stock ownership plans.
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Employee stock ownership plans are used for many purposes in addition to furthering employee ownership. These include the following:
  1. a
    To fund a matching program for a sponsor's 401(k) saving plan, formula-based profit-sharing plan, and other employee benefits
  2. b
    To raise new capital or to create a marketplace for the existing stock
  3. c
    To replace lost benefits from the termination of other retirement plans or provide benefits under postretirement benefit plans, particularly medical benefits
  4. d
    To be part of the financing package in leveraged buy-outs
  5. e
    To provide a tax-advantaged means for owners to terminate their ownership
  6. f
    To be part of a long-term program to restructure the equity section of a plan sponsor's balance sheet
  7. g
    To defend the entity against hostile takeovers.
","snippet":"Employee stock ownership plans are used for many purposes in addition to furthering employee ownership. These include the following:\n(a) To fund a matching program for a sponsor's 401(k) saving plan, formula-based profit…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:dc94565098e9d0c3821fe465a5c26686f2dada5d7efc794af87969bdec704785","downloaded_from":"2026-09-10T01:05:21.414Z","last_downloaded_at":"2026-09-10T01:05:21.414Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480728","source_sha256":"339d5e16ad1287459d3616ca2064687a16b1dc2c48b08f604111f8f50930c953"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:b75ac0bc3301c42d0bc93581227e296dc0fd3ca3ba5ac920ca28f4d724aaf820","downloaded_from":"2026-09-10T01:05:21.414Z","last_downloaded_at":"2026-09-10T01:05:21.414Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480728","source_sha256":"339d5e16ad1287459d3616ca2064687a16b1dc2c48b08f604111f8f50930c953"}},{"block":"Leveraged Employee Stock Ownership Plans","heading":null,"paragraphs":[{"citation":"718-40-05-3","para":"05-3","html":"
A leveraged employee stock ownership plan borrows money to acquire shares of the employer stock. The money can be borrowed by the employee stock ownership plan from the sponsor, with or without a related outside loan, or directly from an outside lender. Outside loans to the employee stock ownership plan are generally guaranteed by the sponsor. Unlike other kinds of employee benefit plans, an employee stock ownership plan is permitted by Employee Retirement Income Security Act of 1974 to borrow from a related party or with the assistance of a related party. The debt usually is collateralized by the employer's shares.
","snippet":"A leveraged employee stock ownership plan borrows money to acquire shares of the employer stock. The money can be borrowed by the employee stock ownership plan from the sponsor, with or without a related outside loan, or…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:8cedf0601c1ca824ba2fc7ed20fc8edf19f7cdd8bbda1bd6cdf7780561ab2407","downloaded_from":"2026-09-10T01:05:21.414Z","last_downloaded_at":"2026-09-10T01:05:21.414Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480728","source_sha256":"339d5e16ad1287459d3616ca2064687a16b1dc2c48b08f604111f8f50930c953"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:cf436ae494c5db912cf1feac528409a18598f15ae9b62d90ce7e3a8757a15e37","downloaded_from":"2026-09-10T01:05:21.414Z","last_downloaded_at":"2026-09-10T01:05:21.414Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480728","source_sha256":"339d5e16ad1287459d3616ca2064687a16b1dc2c48b08f604111f8f50930c953"}},{"block":"Nonleveraged Employee Stock Ownership Plans","heading":null,"paragraphs":[{"citation":"718-40-05-4","para":"05-4","html":"
As indicated in paragraph 718-40-25-21, an employer with a nonleveraged employee stock ownership plan periodically contributes its shares or cash to its employee stock ownership plan on behalf of employees. In the case of cash contributions the entity acquires shares. The shares are allocated to participant accounts and held by the employee stock ownership plan until distributed to the employees at a future date, such as on the date of termination or retirement. The shares of employer stock obtained by the nonleveraged employee stock ownership plan shall be allocated to individual participant accounts as of the end of the employee stock ownership plan's fiscal year. Allocating shares by year end is mandated by the tax code in 2008. The Codification does not keep up with changes in the tax code.
","snippet":"As indicated in paragraph 718-40-25-21, an employer with a nonleveraged employee stock ownership plan periodically contributes its shares or cash to its employee stock ownership plan on behalf of employees. In the case o…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:3932202031ca2c319746def3a0f0bdfcf3188782867cffd670c2c96abe5c6264","downloaded_from":"2026-09-10T01:05:21.414Z","last_downloaded_at":"2026-09-10T01:05:21.414Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480728","source_sha256":"339d5e16ad1287459d3616ca2064687a16b1dc2c48b08f604111f8f50930c953"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:cbf4d1572fc67b3ad8c6197b67653af29712430bdc313803d5be6419e5af36ff","downloaded_from":"2026-09-10T01:05:21.414Z","last_downloaded_at":"2026-09-10T01:05:21.414Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480728","source_sha256":"339d5e16ad1287459d3616ca2064687a16b1dc2c48b08f604111f8f50930c953"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ccb32bddff79a249bf28095118fced87a66dc3f21a0db30a20ff27856cc47953","downloaded_from":"2026-09-10T01:05:21.414Z","last_downloaded_at":"2026-09-10T01:05:21.414Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480728","source_sha256":"339d5e16ad1287459d3616ca2064687a16b1dc2c48b08f604111f8f50930c953"}},"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:ccb32bddff79a249bf28095118fced87a66dc3f21a0db30a20ff27856cc47953","downloaded_from":"2026-09-10T01:05:21.414Z","last_downloaded_at":"2026-09-10T01:05:21.414Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147480728","source_sha256":"339d5e16ad1287459d3616ca2064687a16b1dc2c48b08f604111f8f50930c953"}}