An employee stock ownership plan (ESOP) is a retirement plan in which an employer contributes its stock (or money to buy its stock) to the plan for the benefit of the company’s employees. The plan maintains an account for each employee participating in the plan. Shares of stock vest over time before an employee is entitled to them. With an ESOP, an employee never buys or holds the stock directly while still employed with the company. If an employee is terminated, retires, becomes disabled, or dies, the plan will distribute the shares of stock in the employee’s account. This type of plan should not be confused with employee stock option plans, which give employees the right to buy their company’s stock at a set price after a certain period of time.

An ESOP is a qualified defined contribution plan—under Internal Revenue Code (IRC) section 401(a)—that is a stock bonus plan or a stock bonus/money purchase plan. See 26 U.S.C. §401(a). An ESOP must be designed to invest primarily in qualifying employer securities—as defined by IRC section 4975(e)(8)—and meet certain requirements of the IRC and applicable regulations. The Internal Revenue Service (IRS) and the Department of Labor (DOL) share jurisdiction over some ESOP features.

In South Carolina, as in all states, an Employee Stock Ownership Plan (ESOP) is a retirement plan that allows employees to benefit from the company's success through stock ownership. ESOPs are governed by federal law, specifically the Internal Revenue Code (IRC) section 401(a), which requires these plans to be qualified defined contribution plans. This means they must adhere to certain IRS requirements for tax-favored status, including rules about how and when stock is allocated to employee accounts and how vesting works. Additionally, the stock must be primarily in 'qualifying employer securities' as defined by IRC section 4975(e)(8). The IRS oversees the tax aspects of ESOPs, while the Department of Labor (DOL) is responsible for the enforcement of the Employee Retirement Income Security Act (ERISA) provisions as they apply to ESOPs. This includes ensuring that the plans operate for the exclusive benefit of employees and comply with fiduciary, reporting, and disclosure requirements. South Carolina does not have specific statutes governing ESOPs, so the federal regulations are the primary legal framework for these plans within the state.