STOCK PURCHASE PLAN Meaning and
Definition
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A stock purchase plan refers to a financial arrangement where a company offers its employees the opportunity to purchase shares of its stock. Also known as an employee stock purchase plan (ESPP), it is a comprehensive benefit program that aims to encourage employee ownership and provide an avenue for employees to participate in the company's financial success.
Under a stock purchase plan, eligible employees are typically given the option to contribute a certain percentage of their salary, subject to predefined limits, into a special account. These contributions are usually deducted from the employee's paycheck on an after-tax basis. At specific intervals, often quarterly or semi-annually, the accumulated funds in the account are then used to purchase shares of the company's stock at a predetermined price, which may be discounted or reflect the market value.
The key advantages of a stock purchase plan include the potential for capital appreciation, as the company's stock value increases, and the ability to buy shares at a discount, typically below market price. Employees can hold onto the purchased shares or choose to sell them for a profit at a later date.
Stock purchase plans are subject to legal and regulatory requirements, which may vary depending on the country or jurisdiction. In some cases, employers may impose holding requirements or limit the amount of shares an employee can purchase. The specifics of each stock purchase plan are usually outlined in an official plan document that employees can refer to for detailed information and eligibility criteria.
Common Misspellings for STOCK PURCHASE PLAN
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