Types of Employee Ownership

There are four primary types of employee ownership being utilized across the United States—each with different advantages and costs. It is important to become familiar with all four to determine which type (or types) of ownership are ideal for your company and your employees.

Direct Employee Ownership

In this model, employees purchase and/or are given stock in the company by their employer. 

Percent Owned: Employees are eligible to own any percentage of the company.

Distinctive Features: 

  • Ideal for gradual ownership transition

  • Design flexibility for the company and purchase/selling flexibility for individuals

  • Relatively low cost to set up and administer

Best for: Businesses of all sizes

Employee Stock Ownership Plan (ESOP)

Employees benefit from a regulated retirement plan where a trust owns company shares for the interest of those employees.

Percent Owned: Employees, as a group, are eligible to own any percentage of the company, although 100 percent is most common.

Distinctive Features: 

  • Great tax advantages

  • High costs to set up and administer

  • Suitable for a significant-sized transaction

Best for: Businesses with 20 to 100,000 employees

Worker Cooperative

A company with an established worker cooperative is fully owned by employees and governed democratically.

Percent Owned: Employees must own 100% percent of the company.

Distinctive Features: 

  • Democratic governance

  • Good tax advantages

  • Relatively low cost to set up and administer

Best for: Businesses with 5 to 3,000 employees

Employee Ownership Trust (EOT)

A trust owns company shares for the benefit of the employees. It is typically used for ownership succession where the owner wants to safeguard the company values. 

Percent Owned: The trust owns any percentage of the company, and the employees are entitled to a share of the profits.

Distinctive Features: 

  • Very flexible within the limitations of trust law

  • Moderate cost to set up and minimal cost to administer 

Best for: Businesses of any size

Take a Closer Look

Compare the four types of Employee Ownership side-by-side to see which approach might be right for your company. View PDF

Explore with Tandem

As a nonprofit, Tandem is designed to help you discover employee engagement, profit sharing, and employee ownership options. The team at Tandem walks alongside you to evaluate your needs, outline a potential path forward, and make the transition smooth. Ready to explore your options?