Many high-growth startups have an employee share scheme (ESS) to attract, incentivise and retain key staff. Under an ESS, startup founders can offer their employees shares or options to buy shares in the company. Offering team members shares or options in a startup or small business can also help bridge the gap between their startup salary and an equivalent corporate salary.

LegalVision’s experienced startup lawyers have established employee share schemes and employee share option plans (ESOP) for Australian startups of all sizes. We can assist with:

  • providing advice on setting up an ESS or ESOP;
  • drafting ESS documents, option plans and offer letters as well as disclosure documents;
  • assessing eligibility criteria for startup tax concessions;
  • advising business owners on tax issues, including FBT and tax deductions;
  • providing advice on income tax treatment of any shares or options in compliance with the ATO regulations; and
  • determining appropriate vesting criteria and market value.

LegalVision’s startup lawyers have provided professional advice thousands of startup companies and businesses around Australia. Our startup team can establish your ESS and provide legal advice on how to meet your ESS obligations and reporting requirements in order to offer ESS interests to employees at a discount.

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5 Things You Need to Know About Employee Share Schemes

  • 1Employee share schemes grant employees benefits such as shares in the company they work for at a discounted price, or an opportunity to purchase shares in their company in the future (also known as a right or option).
  • 2From 1 July 2015, there are new tax laws regarding how employee share schemes, also known as employee share option plans, are taxed. These changes help startups to cost-effectively integrate ESSs into their employment structure and business model.
  • 3A startup must meet certain eligibility criteria for tax concessions, including:
    a) aggregated turnover (company has an aggregated turnover of no more than $50m); b) percentage of shares held (an employee cannot hold a beneficial interest in more than 10% of the shares in the company); and c) residency requirements (the employer company must be an Australian resident for tax purposes).
  • 4Startups who offer their employees the opportunity to participate in an employee share scheme must meet mandatory reporting obligations both to those employees and to the Australian Taxation Office.
  • 5There are several legal and regulatory requirements to consider before implementing an ESS, including disclosure and taxation requirements as well as lodging fundraising documents to ASIC. A startup lawyer can assist with drafting and preparing these documents for you.
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