California Amended and Restated Employee Stock Purchase Plan

• Category: Corporations - Public - Employees
• State: Multi-State
• Control #: US-CC-19-179
• Format: Word; Rich Text

Description

19-179 19-179 . . . Employee Stock Purchase Plan under which each employee of corporation and its wholly-owned direct or indirect, domestic and foreign subsidiaries that have authorized participation in Plan (Participating Company) can contribute up to 15% of earnings through payroll deductions and Participating Company contributes a cash amount equal to 5% of participant's payroll deductions for first year of participation, additional 7% for second year, additional 10% for third year, additional 13% for fourth year and additional 15% for fifth year. Custodian of plan purchases shares of common stock on open market or from corporation at current market prices, using payroll deductions and applicable matching Company contributions

The California Amended and Restated Employee Stock Purchase Plan (ESPN) is a comprehensive program designed to facilitate stock ownership among employees in various California-based companies. It offers employees the opportunity to purchase company stock at a discounted price through regular payroll deductions. The ESPN is implemented to encourage employees to become shareholders and align their interests with the company’s success. Through this plan, employees can accumulate shares of their company's stock, potentially benefitting from any increase in its value over time. There are generally two types of ESPN within California, namely the Qualified ESPN and the Non-Qualified ESPN, each with specific characteristics and tax considerations. 1. Qualified ESPN: A Qualified ESPN is a plan that meets specific requirements outlined by the Internal Revenue Code (IRC) Section 423. It provides tax advantages for both employees and employers. Key features of a Qualified ESPN include: — Eligibility: Typically, all employees, even part-time employees, are eligible to participate, except for highly compensated employees and certain individuals holding more than 5% of the company's total stock. — Discounted Purchase: Participants can purchase company stock at a discounted price, usually up to 15% lower than the fair market value on either the offering date or the purchase date, whichever is lower. — Contribution Limits: The IRC restricts the amount an employee can contribute annually to $25,000. — Holding Period: To enjoy favorable tax treatment, participants generally need to hold the purchased shares for at least two years from the offering date and one year from the purchase date. 2. Non-Qualified ESPN: A Non-Qualified ESPN does not meet the specific requirements of IRC Section 423 and may not offer the same tax advantages. Nevertheless, it still provides employees with an opportunity to purchase company stock. Key aspects of a Non-Qualified ESPN include: — Flexibility: Unlike Qualified ESPN, employers can determine eligibility criteria, such as limiting participation to specific employee groups or excluding certain individuals. — No Discount Requirement: Non-Qualified ESPN do not mandate stock purchases at a discounted price, allowing employers more flexibility in setting the purchase price. — No Contribution Limits: The IRC does not impose contribution limits for Non-Qualified ESPN, enabling employees to invest a higher percentage of their income if desired. — Potential Taxation: Employees may face tax implications, such as ordinary income tax on the difference between the purchase price and the fair market value at the purchase date. In conclusion, the California Amended and Restated Employee Stock Purchase Plan provides a valuable opportunity for employees to acquire company stock at a discounted price. Understanding the differences between Qualified and Non-Qualified ESPN can help employees make informed decisions regarding their participation and potential tax considerations.