Esops can change your life. They are probably the most valuable contribution that Startups make to the lives of employees who suffer low salaries and long hours while working in new Companies. However, ESOPs as a concept is confusing and complicated and needs to be understood well.
This is a humble attempt to demystify ESOPs.
Hope this was helpful! Please provide feedback!
Also a number of companies have a clause that in case there is a liquidation event (IPO/M&A etc) before your shares are completely vested, there would be accelerated vesting and all your shares would get vested before their normal vesting cycle.
Very valuable inputs ! This kind of information is not easily available. Thanks Alok !
Hi Alok, suppose if i leave my company before it's merger with some big group, and I buy my piece of vested shares, in that case, can I sell it back (if they have a clause of non transfer) in future to them. how will I know about the evaluation. do I have to make the buy n sell both at the same time during the exit (benefiting with the differential between market & base value)
It's good how you've covered both, an entrepreneur's and an accountant's perspective.
Thank you so much... Extremely helpful!
XYZ management will recommend to the Board of Directors that you be
granted an option to purchase 30000 shares of Common Stock of XYZ Inc.
through our stock option plan. The price per share for each grant will be the fair
market value of the Common Stock as determined by the Board of Directors at the
date of the grant. The shares are subject to vesting over a four-year period at a
rate of 1/48 per month. However, no shares shall be vested for a period of 12
months from your start date.
1) The shares are subject to vesting over a four-year period at a rate of 1/48 per month: Does this mean i shall be allotted (30000/48) shares every month for 48 months???
2) no shares shall be vested for a period of 12 months from your start date: Does it mean i shall not be able to sell the shares for 12 months from the date of allotment???
This is awesome... Can someone also shed some light on how ESOP pool is managed by the company? If say founders have divided 100% of the company among themselves, what do we need to do to expand the pool and what is the "exact" way to offer shares to employees? I need legal process.