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Equity Incentive Plans

What is a cliff in an ESOP?

A cliff is a probationary period (usually 1 year) before any shares vest. If an employee leaves before the cliff, they get nothing.

Are stock options taxable in Georgia?

Generally, receiving shares below market value is treated as a benefit in kind and taxed as income (20%). Proper structuring is needed to manage this.

Can an LLC issue stock options?

Yes, under the new Law on Entrepreneurs, LLCs can issue options and create authorized capital for future share issuance.

What happens to options if an employee leaves?

Typically, unvested options are forfeited. Vested options may be exercised within a short window or bought back by the company, depending on the plan rules.

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Equity Incentive Plans, such as Employee Stock Option Plans (ESOPs) and other share-based bonuses, are among the most important tools for modern business growth. They allow companies to attract and retain high-quality talent without increasing immediate cash payroll costs. With the development of the startup ecosystem and corporate culture in Georgia, these instruments are becoming increasingly relevant. However, their legal structuring is quite complex and requires consideration of the specifics of Georgian legislation. An incorrectly drafted plan can lead to unforeseen tax liabilities for both the company and the employee, or create disputes over share ownership. Specialists on Legal.ge help you create effective, tax-optimized, and legally sound incentive schemes.

What Does Equity Incentive Plans Service Cover?

Lawyers on our platform offer full service regarding the development and implementation of incentive plans:

  • Plan Structuring: Selecting a model tailored to the company's goals (e.g., direct share transfer, options, Phantom Stock, or Restricted Stock Units - RSU).
  • ESOP Documentation Preparation: Drafting option agreements, Plan Rules, and grant notices for employees.
  • Defining Vesting Conditions: Outlining time-based or performance-based (KPI) conditions, after which the employee receives the shares.
  • Tax Consultation: Analyzing when tax liability arises (at grant, exercise, or sale of shares) and how it can be optimized.
  • Corporate Approval: Preparing minutes of partners' meetings and resolutions necessary to allocate shares and approve the plan.

Real-World Scenarios When You Need This Service

Incentive plans are critical in the following cases:

  • Early-Stage Startups: When a company lacks sufficient cash to pay high salaries, options are the best way to attract experienced staff.
  • Management Motivation: Creating long-term interest for C-level executives (CEO, CTO, CFO) to focus on increasing company value.
  • Employee Retention: The "vesting" mechanism compels employees to stay with the company for a certain period (e.g., 4 years) to fully receive the promised shares.
  • Preparation for Exit: Investors view companies where the team owns shares positively, as it increases their engagement and accountability.

Georgian Legal Framework and Regulations

Equity incentive plans are regulated by the Law of Georgia on Entrepreneurs, which in its new version better regulates options and authorized capital. This allows for the pre-allocation of shares for options. regarding taxation, the Tax Code of Georgia is relevant. It is important to determine whether the option is considered a "benefit in kind" and how it is taxed with income tax. Often, "Phantom Stock" (a cash bonus tied to the share price) is administratively and tax-wise simpler than transferring actual shares. A lawyer will help you choose the right instrument.

Service Process

Creating an incentive plan on Legal.ge includes:

  1. Strategic Session: The lawyer reviews your goals and recommends the optimal model (ESOP vs Phantom Stock).
  2. Drafting: Detailed plan rules and agreement templates are prepared.
  3. Tax Analysis: The client is provided with information on expected taxes.
  4. Implementation: Adopting corporate resolutions and signing agreements with employees.

Why Choose Legal.ge?

Incentive plans require deep knowledge of corporate law and tax legislation. Specialists on Legal.ge have practical experience working with both Georgian and international companies. We will help you create a system that truly works for your business and does not create bureaucratic or tax problems.

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