SECP Permits Startups & SMEs to Issue Staff an Employee Stock Option Plan

Taking a step forward to facilitates startups and SMEs, SECP has permitted them to issue Employee Stock Option Plan to their employees. Employee Stock Option Plan (ESOP) is a conventional method of attracting, motivating, and retaining employees. However, this option plan was previously only workable for public companies.

Stock Option Plans allow employees to invest in the company’s share and enjoy their success without starting their own startup business which needs a lot of investment and risk.

Offering ownership rights is a step forward to help the corporate sector, especially SMEs and startups to offer non-monetary compensation to employees for their intelligence services and promotion.

SECP enables Startups to offer Employee Stock Options Plan

A private company can initially offer shares to its existing shareholders in accordance with section 83(1)(a) of the Companies Act, 2017, however, if the whole or certain part of the shares offered is declined or is not subscribed, such shares can be offered to its employees under pre-determined contractual arrangements.

Giving an option to employees to own a company they work for is very motivating for them and also increases their productivity.  Due to this startups are also at an advantage as they are able to smoothly carry on their business operations. This trend of offering shares to employees is very common globally for startups as they are not able to offer hefty salaries.

By giving clearance to private limited companies, SECP longs to accelerate business growth in Pakistan. With time we will be able to see its results.

Also Read: Reforms for Ease of Doing Business Led to 39% Growth in February – SECP