Employee stock purchase plan

An employee stock purchase plan (ESPP) is so program that is run by a company that allows employees to buy the shares of the company at a discounted price. The employees pay for the plan through payroll deductions, that are collected between the date of offering and date of purchasing the shares. On the purchase date, the company uses the gathered amount to buy the shares for the employees.

Moreover, the discount rate on the shares of the company are based on the specific plan, where the maximum discount can be 15% lower than the market price. ESPPs might have the “look back” provision which allows the plan to use a historical closing price of the share. This amount can be either the price of the stock on the purchase date or offering date, based on whichever is lower.

Qualified Vs. Non-qualified Plans

There are two kinds of ESPPs: non-qualified and qualified. The qualified one needs the shareholders approval before implementation, where every participant has equal rights in the plan. The qualified ESPP cannot have an offering period of more than 3 years. Moreover, the maximum price discount allowable has some restrictions.

Non-qualified ESPPs aren’t subjected to many restrictions like the qualified plan. Nonetheless, non-qualified plans don’t have any tax advantages of after-tax deductions as the qualified plans.

If you want further information about ESPPs, Eqvista can help in explaining them to you. You can track the shares and options of your employees through our online cap table.