How does Employee Stock Ownership Plan (ESOP) work?
There are different ways that a company may consider implementing an ESOP. Some companies may prefer to have its founders hold the ESOP shares in trust or may grant the options to its employees directly. You may seek a lawyer’s advice for more information on implementing an ESOP plan.
The lawyers assisting to prepare the ESOP plan would also usually prepare all the relevant documents for the implementation and execution of the ESOP plan.
Documents involved in an ESOP
In general, these are the documents that are usually involved in an ESOP (these documents will vary depending on what is drafted by your lawyers and the process for vesting of options would depend on what is drafted in the ESOP Plan):
- ESOP Plan
- Trust Deed (if shares will be held in trust)
- Directors’ resolutions to approve the trust deed and members’ resolutions to amongst others, adopt the ESOP Plan, and authorise Directors to issue shares pursuant to the exercise of options (“Members’ resolutions”)
- Notice to seek agreement to the passing of the resolutions by written means
- Members’ resolutions (please note that a notice of resolution has to be filed with ACRA within 14 days from the passing of the members’ resolutions)
- Notice informing members of resolutions passed by written means
- Directors’ resolutions to grant options
- Notice to exercise options
- Directors’ resolutions to allot and issue shares pursuant to the exercise of options and authorise the issuance of share certificates
Although Sleek does not assist to prepare ESOP related documents, we may assist to file the necessary notifications with ACRA and issue the share certificates to the respective shareholders upon the exercise of options.