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Home > Resources > ESOP > What Classes of Stock Can an ESOP Own?

What Classes of Stock Can an ESOP Own?

September 9, 2024 by Employee Benefits Law Group

There are multiple classes of stock that an ESOP can own. In our video, we discuss the different classes of stock.

 

Classes of Stock

The Internal Revenue Code defines employer securities for privately held companies as including common stock if the common stock has the highest combination dividends rights and voting rights of any class of common or preferred stock if the preferred stock is freely convertible into common. Some advisors use a common stock which they call super common even though that’s not defined in the Code section. They use either the convertible preferred stock or the super common stock for the purposes of allowing the corporation to pay a tax deductible dividend to finance an ESOP loan transaction. 

Filed Under: ESOP

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EDITOR’S NOTE: We did the best we could to make sure the information and advice in this article were current as of the date of posting to the web site. Because the laws and the government’s rules are changing all the time, you should check with us if you are unsure whether this material is still current. Of course, none of our articles are meant to serve as specific legal advice to you. If you would like that, please call us at (916) 357-5660.

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