Employee share schemes (ESS) or more frequently referred to as an Employee Share Option Plan (ESOP), are tools used by business owners to grant eligible employees the opportunity to acquire shares or share options in the company they work for.
Usefull tools to incentivise top talent within your organisation, employee share schemes come in different shapes and forms and early stage companies commonly use schemes like these, as they might not have the working cashflow to pay competitive salaries.
These schemes additionally play a valuable role in alligning employee and shareholder interests, ensuring employees feel part of the business, that they get onboard with company goals and assists in boosting overall workforce morale.
Shares could either be offered directly to participants or through the granting of an option (which becomes exercisable at a future event) to acquire these shares through a share purchase plan. Some business owners even opt for a ‘phantom share scheme’, which essentially means participants receive notional units tracking the value of an uderlying share in the company. This allows the holder of the notional unit to receive the value derived from the underlying shares (either upon a declaration of dividends or another liquidity event) but the company not relinquishing any voting and control rights associated with offering actual shares in the company to its workforce.
What should I consider when structuring my ESS?:
What do I need to create an ESS?:
An ESS is a formal company policy, authorised and approved by the shareholders of a company and implemented by its board of directors.
To formalise your ESS, you will need:
It is essential when implementing an ESS to ensure the structure is sound, all legal documentation are properly drafted and the tax treatment have been carefully considered.
If you have any questions or would like any assistance setting up your custom ESS, get in touch!
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