A lot of tax advantages are offered by the Employee stock ownership plans (ESOPs). It is basically a retirement plan in which the employers stock is acquired by the ESOP trust for the benefit of employees. The employers stock is purchased by the ESOP trust either from the employer or from the shareholder of the employer. They have to obtain the bank loan for the acquisition of this stock. The employer gives guarantee for the bank loan. Yearly tax deductible cash contributions are made by the employer to ESOP. This cash in turn is used by ESOP towards the loan payments. Then, the shares of the employers stock are then distributed to the employees in line with the requirements of plan distribution.

Unlike the other stock purchase mechanisms, employee stock ownership plan offers a lot of tax advantages. This is for the reason that the tax liability of the employee is postponed until the time the employee disposes off the stock.