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ESOP vs. Stock Options

In my experience, stock options appear to be an almost standard part ofstart upcompensation, but recently I was talking to anentrepreneur/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-stagestart 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.

6 Replies

Rob Gropper
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Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
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
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Ben Brooks Entrepreneur • Advisor
Head of Product at VolunteerSpot, Inc.
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 haveclarifiedthat in my original post. Apologies for the confusion.

Ben
Josh Guttman
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Josh Guttman Entrepreneur
Entrepreneur and Venture Capitalist
ESOP = Equity Stock Option Plan
Josh Guttman
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Josh Guttman Entrepreneur
Entrepreneur and Venture Capitalist
Pardon me - Employee Stock Option Plan
Joseph Hsieh
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Joseph Hsieh Entrepreneur • Advisor
Growth Marketing & User Acquisition Specialist
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:
Ben Brooks
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Ben Brooks Entrepreneur • Advisor
Head of Product at VolunteerSpot, Inc.
Thanks, Joseph.
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