ESOP vs. Stock Options

Ben Brooks Head of Product at VolunteerSpot, Inc.

March 26th, 2013

In my experience, stock options appear to be an almost standard part of start up compensation, but recently I was talking to an entrepreneur/founder who swore by creating an ESOP. I was curious if anyone else out there had an opinion or experience regarding an ESOP in an early-stage start up? I have been under the impression an ESOP made more sense for more mature companies, but would love to hear the group's feedback.

Rob G

March 26th, 2013

An ESOP IS a stock option plan...Employee Stock Option Plan. are you perhaps referring to restricted stock grants VS ESOP? some attorneys will tell you that in the early stages the paperwork for restricted stock grants is cheaper to creat than that for a qualified stock option plan. Others say the cost fifference is minimal. Primary difference is tax treatment.

Ben Brooks Head of Product at VolunteerSpot, Inc.

March 26th, 2013

Rob -

Thanks for the feedback. I've seen ESOP referred to as an Employee Stock Option Plan, but it is also defined as an Employee Stock Ownership Plan which is different. I should have clarified that in my original post. Apologies for the confusion.

Ben

Josh Guttman Entrepreneur and Venture Capitalist

March 27th, 2013

ESOP = Equity Stock Option Plan

Josh Guttman Entrepreneur and Venture Capitalist

March 27th, 2013

Pardon me - Employee Stock Option Plan

Joseph Hsieh Growth Marketing & User Acquisition Specialist

March 27th, 2013

I think you should turn to a professional (Lawyer) to figure this out. Securities, taxes, and company structure should be done properly - it can get you in trouble, and at minimal, make it harder to change or cause issues with what people thought they signed up for, but is now changed.

I understand your startup is early stage, but if you start to have full time employees or you have or planning to raise capital, then you should get some professional advice.

Having said that, this is a good blog post on these matters:

http://startuplawyer.com/stock-options/what-are-isos

Ben Brooks Head of Product at VolunteerSpot, Inc.

March 27th, 2013

Thanks, Joseph.

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