Employee Stock Ownership Plans (ESOPs) and stock options represent one of the most powerful tools for attracting and retaining talent, especially for startups and technology companies. In Georgia, this practice is becoming increasingly popular as it allows companies to preserve cash flow while offering employees a stake in the company's success. However, issuing options is a legally complex process requiring deep knowledge of corporate law, labor law, and the Tax Code. An incorrectly drafted option plan can lead to severe tax consequences for the employee or corporate governance issues for the founders.
Legal.ge connects you with corporate lawyers specializing in the structuring of ESOPs and equity options. Their services include:
- Developing ESOP Plans: Defining the Option Pool, eligibility criteria, and rules for granting options.
- Designing Vesting Schedules: Determining "Vesting" and "Cliff" periods to ensure long-term employee retention.
- Tax Planning: Analyzing tax obligations at the moment of Grant and Exercise of options according to the Tax Code of Georgia.
- Drafting Corporate Documentation: Preparing minutes of shareholder meetings, charter amendments, and option agreements.
- Phantom Stock Schemes: Developing alternative incentive schemes where employees receive a cash bonus proportional to the increase in stock value without actual share ownership.
The need for options often arises in startups that cannot afford high salaries but need top-class developers or managers. For example, a Georgian tech startup offers a CTO a 5% stake in the company, vesting over 4 years. A lawyer must define what happens if the CTO leaves after 2 years (Good Leaver vs. Bad Leaver terms) and how the received shares will be taxed. Also important is the "Exit Strategy" — what happens to the options if the company is sold.
In Georgia, options are regulated by the "Law of Georgia on Entrepreneurs" and the Civil Code. Although there is no specific law on ESOPs, Georgian legislation provides flexible means for share allocation and conditional ownership. The tax aspect is critical: under the Tax Code of Georgia, property (shares) received below market price is considered a benefit and is taxed. Lawyers will help plan this process to avoid double taxation and financial loss.
The process begins with clarifying the founders' goals. The lawyer determines whether actual share transfer is better than a "phantom" scheme. Then, the option plan and individual agreements are prepared. These documents must be synchronized with the company's charter and the Shareholders' Agreement.
On Legal.ge, you will find experts who know how to turn your employees into partners. A well-structured option system is a catalyst for growth and an attractive factor for investors.
Updated: ...