ESOP Valuation: What Does It Mean?
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Since private company stock isn't traded daily on an exchange, and there is no way to determine the share price. ESOP Valuation is the annual process for an independent assessment that sets the price per share for stock in a privately held Employee Stock Ownership Plan (ESOP).
The annual share price directly determines the current dollar value of an employee's ESOP account balance. If they retire or leave the company that year, this price dictates how much cash the employee receives for their vested shares.
Federal law requires an independent, third-party expert to determine the company's fair market value once a year. This valuation is reflected on the employee's annual ESOP statement.
