Participant eligibility for an ESOP program is determined by a combination of factors.
First and foremost, the selection of employees or collaborators is key. The decision as to who will participate in the program — i.e., who will become a program member — is made by the company, specifically by its shareholders or partners. The most common criteria considered during this selection process include length of service and the position or role held within the organization. Depending on the company’s size and development plans, the selection may be made individually — specifying exactly who should be offered participation — or by identifying a group of employees or collaborators as potential participants (e.g., project managers).
Both the adoption of the program and the establishment of eligibility criteria for prospective participants should be reserved for a designated corporate body. Implementation practice suggests that the safest solution is to assign this authority to the shareholders’ or partners’ meeting.
As a rule, the implementation of an ESOP program typically requires formal approval via a resolution of the Shareholders’ or Partners’ Meeting.
Additionally — to ensure organizational transparency — it is recommended that the company’s articles of association or statute include, within the catalog of matters requiring shareholder approval, both the adoption and any amendments to the ESOP-based incentive program.
One issue that may warrant deeper analysis in a given case is the introduction of a financial reserve obligation into the company’s articles of association to cover the execution of the ESOP. The amount of such reserve will depend on the specific rules and conditions of the program.
The company may offer a prospective participant a defined number of shares or equity interests (including “virtual” ones) by way of an offer — most commonly referred to as an Allocation Document. Acceptance of the company’s offer by the prospective participant should be made in writing, without reservations, amendments, or modifications, and within the acceptance period specified in the Allocation Document.
Although the Allocation Document should be simple and concise — as it is the instrument through which the participant accepts the program terms and commits to participation — it is a critical component of the ESOP infrastructure. Among other things, it specifies the date on which the Vesting Period begins. Its final form and content are always determined by the wording of the Program Rules and the company’s individual preferences.
