![\"Front](\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/2\/2022\/11\/04125848\/nz-ess-guide-560x792-2.jpg\")
\n Understand how an Employee Share Scheme will help your NZ startup attract and retain great talent.<\/p>\n <\/div>\n \n\nDownload Now<\/a> <\/section>\n <\/div>\n\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n
Employee Share Option Plans<\/span> (ESOPs)<\/h3>\n\n\n\nESOPs<\/a> are one of the most common forms of ESS, particularly in New Zealand, where employees are given the option to buy shares at a predetermined price at a future date. If the company performs well and its share price rises, employees benefit from purchasing shares at the lower, agreed-upon price. ESOPs are ideal for startups or growing businesses that may not have immediate liquidity to pay high salaries but want to attract and retain key talent.<\/span><\/p>\n\n\n\nESOPs are a popular alternative to avoid the disadvantages of issuing shares directly to employees, including the: <\/p>\n\n\n\n
\n- tax treatment<\/a> of ESS shares;<\/span><\/li>\n\n\n\n
- potential need to provide loans to your employees to fund their purchase of the shares;<\/span><\/li>\n\n\n\n
- potential need to <\/span>set up a trust<\/span><\/a> to hold your employees\u2019 shares for them until they have earned them;<\/span><\/li>\n\n\n\n
- shareholder rights<\/span><\/a> your employees will have immediately upon becoming shareholders. For example, information, voting and dividend rights; and<\/span><\/li>\n\n\n\n
- difficulty involved in buying back or cancelling shares if your employee leaves earlier than anticipated.<\/span><\/li>\n<\/ul>\n\n\n\n
Under an ESOP, your employee receives options at no upfront cost and with no upfront tax liability. The options will typically \u2018vest\u2019 over some time (usually three to four years). As long as the employee remains employed by the company, the options will continue to vest. Once the options have fully vested, the employee can then convert them into shares by paying the \u2018exercise price\u2019 or \u2018strike price\u2019.<\/span><\/p>\n\n\n\nThe exercise price of an option is usually the market value of a share in the company at the time the option was granted, or a nominal price. Once your employee exercises their option, they will be liable for income tax on the difference between the exercise price paid and the market value of the shares when exercised.<\/span><\/p>\n\n\n\n
ESOPs are a popular alternative to avoid the disadvantages of issuing shares directly to employees, including the: <\/p>\n\n\n\n
- \n
- tax treatment<\/a> of ESS shares;<\/span><\/li>\n\n\n\n
- potential need to provide loans to your employees to fund their purchase of the shares;<\/span><\/li>\n\n\n\n
- potential need to <\/span>set up a trust<\/span><\/a> to hold your employees\u2019 shares for them until they have earned them;<\/span><\/li>\n\n\n\n
- shareholder rights<\/span><\/a> your employees will have immediately upon becoming shareholders. For example, information, voting and dividend rights; and<\/span><\/li>\n\n\n\n
- difficulty involved in buying back or cancelling shares if your employee leaves earlier than anticipated.<\/span><\/li>\n<\/ul>\n\n\n\n
Under an ESOP, your employee receives options at no upfront cost and with no upfront tax liability. The options will typically \u2018vest\u2019 over some time (usually three to four years). As long as the employee remains employed by the company, the options will continue to vest. Once the options have fully vested, the employee can then convert them into shares by paying the \u2018exercise price\u2019 or \u2018strike price\u2019.<\/span><\/p>\n\n\n\n
The exercise price of an option is usually the market value of a share in the company at the time the option was granted, or a nominal price. Once your employee exercises their option, they will be liable for income tax on the difference between the exercise price paid and the market value of the shares when exercised.<\/span><\/p>\n\n\n\n
- potential need to provide loans to your employees to fund their purchase of the shares;<\/span><\/li>\n\n\n\n