ESOP · How do employee shares actually work?
How to think about equity before you give it away.
Hong Kong has minted its own unicorns — and the best of them made people genuinely rich through equity. Every founder draws the same lesson — equity is how you glue a team together.
Is it, though? Look at what was actually built, not the headline: a deliberate mix of instruments, a real path to cash before any exit, adjusted as the company grew. An omelette — not a boiled egg. Most founders treat an ESOP as a document to copy. It isn't. It's five decisions that pull against each other — and one thing that sits beneath all of them. This is the map I walk founders through.
The decision map
Five decisions, made in order.
Each decision constrains the next. The mistake founders make is jumping straight to the instrument — "options or RSUs?" — without answering why and who first, and skipping the structure entirely.
What is this equity actually for?
The decision everyone skips. Purpose dictates instrument, terms and vehicle — get this wrong and the rest is guesswork.
- RetainLong build, no near exit → long vesting + a liquidity path
- RecruitCan't match market salary → equity's future value as part of the package
- RewardPay back early risk → weighting toward first believers
- AlignGet everyone pulling one way → broad, understood ownership
Who gets a grant — and can you defend it?
The branch that turns personal later. Two failure modes: everyone gets the same regardless of contribution, or grants by gut with no logic you can stand behind when asked.
- IdentifyWho actually moves the company — not just who's senior or early
- DifferentiateA defensible logic for why one number differs from another
- TierFounders, key hires, broad base — different instruments fit different tiers
- RefreshWho gets a second grant, and on what trigger
Which instrument fits the purpose?
The layer everyone fixates on. Each carries a trade-off between cash cost to the employee, tax timing, and dilution.
- Share optionsRight to buy later at today's price.
- RSUsShares on vesting — no cash to exercise
- Restricted share awardsReal shares now, subject to buy-back
- Phantom / cash-settledUpside without touching the cap table — often right for SMEs
- Growth / hurdle sharesOnly value created above a threshold
The terms that decide if it works.
Where good intentions become a plan — or a trap. The cells founders copy from US templates without checking local reality.
- Pool size% set aside + how it's topped up
- VestingCliff, schedule, time vs milestone
- Strike priceHow it's set — valuation discipline matters
- Leaver termsGood vs bad leaver; vested vs unvested
- LiquidityBuyback, secondary, tender — or wait for exit
Where does the equity actually sit?
The branch most founder advice ignores — and the one that quietly governs your cap table, your tax, and your next raise.
The differentiator- Direct on OpCoSimplest — but every holder touches the real cap table
- HoldCo / ParentCoGrant above the operating entity; OpCo stays clean
- ESOP trust / nomineeTrustee holds shares, staff hold beneficial interest
- Pooling SPV / LPMany small holders → one line on the cap table
- Offshore parentCayman / BVI vs HK — ties into red-chip / dual-track
Beneath all five — the part no document fixes
Equity is a relationship, communicated. Not a grant letter, filed.
You can get instrument, terms, vehicle and selection all right and still have equity fail — because the person holding it doesn't understand what they have. A grant nobody understands builds no loyalty. This layer runs under every branch above.
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Communicate the plan
What they actually hold
What the instrument is, what it could be worth, what it could cost them to realise — and the honest risks. Plain language, not the plan summary.
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Communicate the decision
Why this number, for them
The logic of their grant relative to others — so people feel fairness is taken seriously, not just the size of the number itself.
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Communicate expectations
What it's in return for
What ownership asks of them, over what horizon. Equity is a two-way document — most founders only state one side.
The decision underneath the decision
Three things every incentive structure must weigh.
No right or wrong — only what fits. Different stage, different choice.
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Cap-table cleanliness
How many small shareholders you carry, how investors perceive it, and whether it complicates administration or a future buy-back.
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Tax efficiency
For the company and the employee — and the timing of the taxable moment, which differs by instrument.
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Financing & exit readiness
Whether the structure helps or hinders the next raise, a cross-border flip, or an eventual listing.
The point most founder advice misses
Founders fixate on whether to grant shares or options — but the structure matters just as much. It governs the next round, a cross-border restructuring, and your tax exposure.
The omelette-vs-boiled-egg point applies to structure, not just the instrument. Get the structure right and every other decision has room to breathe.
Get these wrong and equity not only fails to keep anyone.
It quietly breeds doubt.
If you're designing or refreshing your equity plan and want to think it through for your stage, your team, and your structure — that's a conversation I'm always happy to have.
Educational material only — not legal advice. For advice on your own matter, speak to us directly.