Employee Stock Purchase Plan

An Employee Stock Purchase Plan (ESPP) is the broad-based benefit that lets employees purchase company stock at a discount via payroll deductions. Typically established under IRC Section 423 for qualified tax-favored treatment, employees buy stock at up to 15% below market price at the end of each 6-month offering period, almost exclusively at public companies because the mechanic requires liquid stock. It is a meaningful employee benefit at public companies and largely irrelevant at private startups before IPO.

The Section 423 (qualified) ESPP mechanic:

• Enrollment: eligible employees enroll during a defined window before each offering period begins, electing a payroll deduction percentage (typically up to 15% ...