WHAT IS ESOP? CONDITIONS FOR ESOP ISSUANCE?

Through ESOP, employees have the opportunity to become shareholders and benefit from the growth of the company. However, how does an ESOP operate, what are the conditions for issuance, and which companies are legally authorized for ESOP issuance?

What is ESOP?

ESOP (Employee Stock Ownership Plan) is the issuance of shares under an option program for employees in a company.

This is one of the programs of the enterprise to encourage employee engagement and long-term dedication. Enterprise can reward shares or offer them to employees.

Consequences of ESOP issuance?

After completing the procedures for the ESOP program, employees will become shareholders of the company, with full rights and obligations of shareholders corresponding to the type of shares owned according to the ESOP issuance regulations issued by the company.

What kind of companies is entitled to process ESOP issuance?

Currently, only the Law on Securities has regulated ESOP issuance procedures. In particular, the subject of ESOP issuance is a public joint stock company.

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Note that the ESOP issuance by public company is only determined to be legal when it fully complies with the prescribed conditions and procedures.

What are the conditions for ESOP issuance?

Pursuant to Article 64 of Decree 155/2020/ND-CP, public companies issuing shares under the ESOP in the company need to meet the following conditions:

– The ESOP is approved by the General Meeting of Shareholders (GMS).

– The total ESOP shares in every 12 months do not exceed 5% of the outstanding shares of the company.

– There are criteria and list of employees eligible for ESOP, rules for determination of quantity of ESOP shares and execution time that are approved by the GMS (or the Board of Directors if authorized by the GMS).

– When issuing ESOP shares, the equity must be sufficient for increasing share capital. 

– In case the company issues bonus shares to employees, the total value of the above sources must be no lower than the total value of additional equity capital according to the plan approved by the GMS.

– The issuer must open an escrow account to receive payment of the employees for the shares, except issuance of bonus shares to employees.

– The issuance satisfies regulations on foreign ownership ratio in case ESOP shares are issued employees who are foreign investors.

– The ESOP shares will be restricted from transfer for at least 01 year from the ending date of the offering.

– Be approved by the State Bank of Vietnam for the request to increase charter capital according to the provisions of law on credit institutions for the issuance of shares of credit institutions or be approved by the Ministry of Finance to increase capital Charter according to the provisions of law on insurance business for the issuance of shares of insurance business organizations.

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