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Employees Share Schemes for Private Companies

Employees Share Scheme (ESS) or Employee Share Option Plan (ESOP) provides employees with an ownership interest in the company.

Benefits of ESS

§ Recruit and retain talents

§ Employees will be motivated to do their best for the company

§ Increase loyalty and reduce staff turnover

§ Raise working capital

§ May provide more tax-efficient remunerations to key employees

§ As an alternative remuneration (for start-ups that are paying a lower salary)

Key considerations when setting up an ESS

a. Type of shares/options: Which instrument would best fit your organization - ordinary shares, preference shares, phantom shares or employee share options?

b. Exercise price:

What is the issue price or exercise price?

c. Transferability: Can the shares/options be transferred?

d. Candidates’ selection criteria: Who is entitled to participate in the scheme?

e. Exit, share buy-back, and other pertinent clauses

What happens when the employee resigns or becomes problematic?

f. Dilution of ownership for existing shareholders: How do you address the problem of dilution in ownership?

g. Dividends

Will the shares provide fixed or variable dividends?

h. Financing: Will the company provide any financing to assist the employees in acquiring the shares/options?

i. Tax consideration

What are the tax implications for the company and its employees?

j. Grant date and exercise date: When should this be carried out?

How to get started?

ESS and ESOP are great ways to reward your employees and incentivise them to stay with your company.

If you are considering implementing an ESS or ESOP for your business, please contact us on next steps.


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