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 Virginia, as in all states, an Employee Stock Ownership Plan (ESOP) is a retirement plan that allows employees to benefit from the company's success without directly purchasing or holding the company's stock while they are employed. ESOPs are governed by federal law, specifically under section 401(a) of the Internal Revenue Code (IRC), which means they must comply with the rules for qualified defined contribution plans. These plans are designed to invest primarily in the securities of the sponsoring employer and must adhere to certain IRC requirements and regulations. The IRS oversees the tax aspects of ESOPs, ensuring they meet the qualifications for tax-deferred benefits, while the Department of Labor (DOL) is responsible for the protection of the employees' rights within these plans, including issues related to vesting and the fiduciary responsibilities of those managing the ESOP. Virginia state law does not specifically govern the operation of ESOPs, as they are subject to federal jurisdiction; however, state laws regarding corporations and employment may indirectly affect how ESOPs are implemented by companies within the state.