Allowing participants of an Employee Stock Purchase Plan (ESPP) to purchase fractional shares seems financially preferable to ESPP participants than not allowing them to do so, since purchasing fractional shares allows participants to always reach the yearly maximum of 25,000 USD set by the IRS (maximum in 2021).
Example if not allowing ESPP participants to purchase fractional shares:
- $25,000 USD contributed
- $900 USD purchase price (stock price)
- 27 shares would be purchased ($25,000 / $900=27.77)
- $700 (= $25,000 – (27 shares X $900)) won't be used toward the stock purchase: only 24,300 USD (=25,000-700) is used for purchasing stocks within the ESPP.
Why don't some ESPPs allow participants to purchase fractional shares?