Employee share option plans or ESOP Australia is a benefit plan for employees under which the workers ownership interests are provided in the company. It facilitates the opportunity to the workers to participate in the growth of the company by investing in a percentage of total shares and ensures good returns whenever the business revenue upgrades in the market. This plan helps the small and initiative businesses who are unable to afford high salaried employees to associate with them as the shareholders of the company and undergo mutual growth within shared finances.
A formally written policy of a start up that provides the authenticity to the employees to be a shareholder by recieving or purchasing the associated securities. In Australia, this plan is in operation since 2009 and every employee has the right to own maximum 10% of the total shares of the company. The term ESOP is a counter image of the legal scheme in USA ie. ESOP(employee stock option plan).
A recipient of this plan is benefited with small startup tax concession. The taxes charged on the recipient would not be on the basis of market value of the securities but he will be taxed on the market value only when he disposes of the security.
As per the new legislation enactment in 2015, the following criteria are to be fulfilled by the startup companies to qualify for a tax effective ESOP:
-The startup company must not be older than 10 years.
-The annual turnover of the startup must not exceed $50 million in the year of implementation of ESOP.
-These securities must be held for minimum 3 years or until the recipient ceases employment.
-It is applicable to an employee percentage of no less than 75% and all recipients must have completed minimum three years of service in the startup.
-The company cannot be listed on stock exchange and must be a tax resident of Australia.
-The business must not be listed as public.
This plan can be customised as per the size of the start up and the total number of employees. By legal involvement in the ownership of shares of the business, the employees become more loyal, responsible and determined to generate better performance in order to achieve mutual benefits and incentives on shared investments. An attractive ESOP Australia attracts new skill sets to get associated with the business and ensures the retainment of the existing talented manpower due to disbursal of equitable benefits.