Friday, January 25, 2013

Employee Share Options Plans - are they a major issue?

Last week I met with 5 people from Treasury and the Department of Industry and Innovation to discuss the legal issues around employee share options plans, particularly for startups.

During the meeting, I shared my thoughts as I'd outlined them in my previous blog post. Thanks so much to everyone who responded in the comments, your thoughts and ideas were really useful. The people I met with had good questions and seemed to have a good take on the issues and impact for startups of the current legislation. They were meeting with quite a few people in the space over a couple of days. They indicated that one of the challenges they face is how to make things simpler for startups, while ensuring larger companies like investment banks can't use the legislation as a way to reduce their tax obligations. (Apparently the law around options changed a few years back to prevent Macquarie Bank using the legislation to pay less tax. Startups got caught up in these changes).

We're in the process of putting together an employee share options plan for our team at Shoes of Prey and as we've progressed with this over the last few weeks I've come to the realisation that while the law around this is a long way from perfect, it's actually not that expensive for a startup to structure a good plan within the law as it stands at the moment. We're finalising our plan now, the total cost for accounting and legal fees will be $5,000, well within the budget of most startups.

I'll post full details of how we're structuring our plan in a few weeks time when it's up and running.

In the meantime, I'd love to hear from others who have set up ESOPs. Did you have a similar experience to us where, while not as simple as it could be, in practice the cost of setting this up was actually quite low? Do we actually need to be lobbying to change this legislation or are we better off focusing our energies on other, extremely important areas like education?

3 comments:

  1. Great conversation to be having - from our advice we've received so far the tax implications are particularly thorny.

    We're currently wrestling with this ourselves and have spoken to several providers, but we've been quoted $15k+, which seems prohibitively expensive. It's also not easy to find reputable providers as not many seem to specialise or necessarily advertise services in this area.

    The $5K you mentioned seems like a much more reasonable figure, and more affordable for a startup or SME. Any chance you can give some pointers to more reasonably priced providers who can setup a decent ESOP?


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  2. Hi MN, I was planning to write a recommendation on this blog when we'd completely been through the process ourselves and I felt confident in making the recommendation, but if you're working on this now we've been using David Kenney from Hall Chadwick. David's email address is dkenney at hallchadwick.com.au. Let him know I sent you.

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  3. Thanks Michael - much appreciated. Will definitely get in touch.
    Looking forward to further posts on the topic :)

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