The expiration of an ESOP (i.e., the point at which the program ceases to be in effect) is determined primarily by the program’s internal regulations — though not exclusively. Regardless of which documents specify the termination conditions, those provisions must be precise and unambiguous. In practice, this is one of the two elements most closely scrutinized by potential participants and one of the key factors in their decision to join the program.
It is the company that decides which events will entitle a participant to exercise their acquired rights and thereby exit the program (e.g., sell acquired shares or monetize “virtual” equity). These events must be clearly defined in alignment with the company’s development plans and the expectations set prior to the program’s implementation.
Proper construction and safeguarding of the participant’s “exit” rules is therefore one of the most critical regulatory aspects of any ESOP.
