An Employee Share Option Plan is more than a bonus scheme. Done properly, it aligns the interests of your best people with the long-term value of your business, attracts talent you couldn’t otherwise afford, and starts the ownership transition years before you’re ready to sell.
Book an ESOP reviewAn ESOP is a structured programme that gives your employees and contractors the right to buy shares in your business at a predetermined price, subject to conditions you set. It's not a cash bonus. It's a strategic tool that turns your key people into part-owners, aligning what they do every day with the long-term value of the business you're building together.
Done well, an ESOP works on three levels at once. It rewards the people who built the business with you. It attracts talent you couldn’t afford to hire on salary alone. And it starts the ownership transition years before you’re ready to sell, so the business isn’t dangerously dependent on the founder when the time comes to exit. Options can vest over time, on performance, or on an exit event, and different rules can apply to different employees. All of it deliberate.
The tax treatment is where most business owners get it wrong. Give someone $500,000 of shares with no vesting conditions and you’ve just handed them a $250,000 tax bill they can’t pay. The Australian start-up concessions can eliminate that tax bill entirely, if your business qualifies. Structuring the plan, pricing the options using the net tangible assets method where it applies, and documenting everything so the ATO reporting is clean. This is the work we do before an ESOP is issued.
When actual equity is too much (the cap table is complicated, the shareholder mechanics don’t fit), phantom equity is the alternative. An employment contract that mirrors ownership: employee gets a bonus tracking dividends, and a percentage of exit value on a sale. Not the same as ownership, but the incentive alignment gets you most of the way there.
Who is eligible, how much equity is on the table, whether options are tailored per employee or standard-issue, whether vesting is time-based, performance-based, or both. The design decides everything downstream.
The initial issuance to each eligible employee. Each person receives a letter of offer setting out how many options they’ve been granted, the exercise price, and the vesting conditions that apply to them personally.
The employee clears the vesting hurdles before they can exercise. Time hurdles: 1–5 years of continuous service, either milestone-by-milestone or cliff vesting. Performance hurdles: revenue targets, EBITDA targets, share-value milestones, or an exit event. Vested options are earned; unvested options are not.
Three methods. Upfront: rare, only when there are no vesting conditions. Deferred: tax at vesting on the market value at that date. Start-up concessions: tax deferred to exercise or sale, valued using the net tangible assets method, usually the best outcome by a large margin when the company qualifies.
Once vested, the employee can exercise: pay the exercise price and convert the options into actual shares. They now hold equity, subject to the shareholders’ agreement that governs how those shares behave.
Ongoing communication with employee-shareholders, distributions and dividends, restrictions on transfers, buy-back provisions if the employee leaves, and treatment on exit or IPO. An ESOP is a ten-year commitment, not a document.
When cash is tight and the talent you need is priced for a larger business, equity is the currency that closes the gap. Board members, first ten hires, technical founders. An ESOP is often the only way to get them into the room.
When the next generation doesn’t want the business, or isn’t ready to run it, an ESOP brings in professional management, transfers ownership gradually, and preserves the family’s legacy without a fire-sale outcome.
Long-serving key employees have often built as much value as the founders. An ESOP recognises that contribution, keeps those people through the next chapter, and starts the ownership transition on the founder’s terms.
Issue options at today’s business value. The team grows the value over the next 2–5 years. Everyone shares in the upside at the exit. This is the highest-leverage use of an ESOP we see. The value unlocked is many times the equity given.
The single biggest factor that discounts a business at sale is founder-dependence. Bringing key managers into ownership formalises the transition. The acquirer sees a management team, not a solo owner with a title.
Annual bonuses are appreciated in the moment and gone by December. Equity compounds. If you’re paying meaningful bonuses to the same three or four people every year, an ESOP capitalises those payments into ownership.
Every ESOP engagement is scoped and quoted upfront. No hourly billing, no surprises. A straightforward plan for a single-employee grant sits at one end. A full plan design, valuation, plan rules and letters of offer for a team of ten with performance-based vesting sits at the other. We give you the number before you commit, not after the invoice.
For clients on a Virtual CFO or Tax Planning retainer, the ESOP work is scoped separately as a project and quoted at the start. Ongoing ESOP management (annual valuations, new grants, exit and buy-back events) sits inside the annual advisory relationship.
Book an ESOP reviewAn ESOP is a system of decisions and documents working together. Get any one of them wrong and the plan misfires. Here are the pieces we design.
Every ESOP starts with intent. Who are you trying to retain? Which value are you trying to unlock? Where are you exiting? Strategy sits before structure and determines everything downstream.
The right to buy shares at a predetermined price, subject to conditions. Never the shares themselves upfront. Options give the flexibility to walk it back if the employee leaves before vesting.
Time-based, performance-based, or both. Cliff vesting or milestone. Can be tailored per employee. Board members on different terms to sales staff.
Set at the market value of a share on the grant date. Under the start-up concessions, market value can be based on the net tangible assets, often materially lower than the equity’s economic value.
Individual document setting out grant, exercise price and vesting conditions for that specific employee. The legally binding contract with the employee. Precision here matters.
The overarching legal document that governs the ESOP: transfers, termination, exit, ATO and ASIC compliance. Consistent across the plan, not per employee.
Once employees exercise, this governs the ongoing relationship: voting rights, dividends, drag-along and tag-along rights, buy-back on departure. Best drafted before the first exercise, not after.
The most valuable tax treatment available. Requires the company to be less than 10 years old, less than $50m turnover, unlisted Australian, non-investment, options in ordinary shares, and no single person exceeding 10% ownership.
Illustrative composite. Numbers are indicative of the kind of outcome this structure produces; not a specific client.
The before. A 30-person digital agency doing about $6m revenue, founded eight years ago, profitable throughout. The founder was thinking about a five-year exit but the business was materially dependent on two senior hires (the creative director and the client services director) who together held the largest client relationships and led the two revenue lines. Both had been with the agency four-plus years, both were being approached by competitors, neither had a meaningful ownership stake. Losing either would have taken 30–40% off the sale value.
The work. Designed a two-person ESOP through a newly-inserted holding company. Each department head was granted options over 5% of the group at a strike price based on the net tangible assets valuation. Most of the agency’s value sat in client relationships and goodwill, so under the start-up concessions the strike price was materially below the economic value of the equity. Vesting was 20% per year over five years, with acceleration on an exit event. Plan structured under the Australian start-up concessions. The company met every eligibility test, so no upfront or deferral-date tax liability. Plan rules, letters of offer and a shareholders’ agreement were drafted and executed before the options were issued.
The two department heads exited the sale with proceeds that materially changed their families’ financial positions. The founder exited with more money than she would have kept the business a solo owner-operator to the end.
The full plan structure: eligibility, equity pool size, vesting logic, valuation approach. What we’re recommending and why, in plain English.
The market value of options at grant date, using the net tangible assets method under the start-up concessions where applicable. The number and the working, defensible if the ATO asks.
The legal document that governs the ESOP for its life. Drafted with your lawyer where legal drafting sits outside our scope; managed inside where it sits inside.
One per employee. Grant, exercise price, individual vesting conditions, and the surrounding administrative detail. Ready for you to issue and countersign.
Prepared at plan setup, ready for the first exercise. Covers transfers, buy-backs on departure, drag and tag rights, and treatment on exit. Prevents the awkward conversations three years from now.
How the ESOP gets rolled out to your team, including staff education, one-page summaries per employee, and the ATO reporting cadence. Complex product, made explainable.
Bring what you have (the roles you want to reward, the growth you’re targeting, the exit horizon you’re thinking about). 25 minutes. We’ll tell you whether an ESOP fits, which structure makes sense, and what a plan would cost to design and implement.
Book an ESOP review