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ESOP pool without treasury stock

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cattleherder
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ESOP pool without treasury stock

Postby cattleherder » Fri, 11 Aug 2017 11:22 pm

Hello everyone,

I am in the process of setting up a tech startup in Singapore. One of the items on the agenda is implementing an employee stock option plan.

I asked my accounting company to create unallocated shares to reserve for the pool, to which I received a reply that it is not possible. She said,

Treasury shares do exist in Singapore. However, it is a very extensive procedures as it will involve among other things such as declaration of solvency by directors, approval by shareholders, publicity of the same for creditors to file objections, if necessary, etc.
...
This is a less recommended way as it is quite a long process.


She recommended instead issuing shares on the spot as the options issued to a particular employee mature. But that's tricky: as our valuation will change and new investors will come in, the allotted portion will change, too. ](*,)

What is the way it is normally done?

Is that according to the shares the cofounders own?

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Strong Eagle
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Re: ESOP pool without treasury stock

Postby Strong Eagle » Sat, 12 Aug 2017 1:33 am

I took a look at the Singapore Companies Act (Section 76 and 76H), and yes, it is complicated. Treasury stock cannot be more than 10% of total stock issued.

You also have to worry about breaking your private limited status if your exercised employee options would cause you to exceed 50 shareholders.

I am unclearer however. Why not have your articles of incorporation specify the total shares that can be issued, then simply issue new shares when options are exercised. After all, employees will purchase at the agreed strike price, and they are taxed at the difference between the strike price and actual market value.

From what I've read, so long as your ESOP plan is clearly documented, with the potential number of shares clearly specified so that existing shareholders know what the dilution will be, why even fool with treasury stock. That stock doesn't vote and doesn't pay dividends, anyway.

cattleherder
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Re: ESOP pool without treasury stock

Postby cattleherder » Sat, 12 Aug 2017 1:53 am

Thank you, Strong Eagle.

Strong Eagle wrote:You also have to worry about breaking your private limited status if your exercised employee options would cause you to exceed 50 shareholders.
Not an issue, since it's only for a selected few, but thanks for the warning.

Strong Eagle wrote:I am unclearer however. Why not have your articles of incorporation specify the total shares that can be issued, then simply issue new shares when options are exercised. After all, employees will purchase at the agreed strike price, and they are taxed at the difference between the strike price and actual market value.
Hmm... That's an interesting idea. As of now, we defined the pool in terms of percentage. It is exercised only in case of a fungible event.
Strong Eagle wrote:From what I've read, so long as your ESOP plan is clearly documented, with the potential number of shares clearly specified so that existing shareholders know what the dilution will be, why even fool with treasury stock. That stock doesn't vote and doesn't pay dividends, anyway.

Just a matter of housekeeping to avoid making a mistake with a complicated model and annoying the future investors.


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