A profit-sharing plan is typically used for sharing profits from the business with employees, but an employer may make profit-sharing contributions regardless of whether the business had profits for the year. Contributions to the plan are usually discretionary, which means that the employer may choose not to contribute to the plan every year.
A stock-bonus plan is a type of profit sharing by which a corporation uses its own stock to make contributions and distributions. These plans, however, are not available to sole proprietorships and partnerships.
Profit-sharing and stock-bonus plans are suited for employers who are newly established and are unable to determine profit patterns or who want to have flexibility with making plan contributions.
A profit-sharing and stock-bonus plan may include a 401(k) plan feature.