Fundamentals of ESPPs

An employee stock purchase plan (ESPP) that meets the requirements of section 423 of the US Internal Revenue Code (IRC) allows a sponsoring corporation to grant rights to purchase its stock (or stock of its related parent corporation or a related subsidiary corporation) at a price that is less than FMV to its employees and the employees of participating corporations. The rights to purchase the stock are sometimes referred to as stock options or purchase rights, and the terms and conditions upon which the purchase rights will be granted are sometimes referred to as an offering. In this Practice Note, these tax-qualified employee stock purchase plans are referred to simply as ESPPs, but note that not all employee stock purchase plans are designed