How to Set Up an ESOP (Employee Stock Ownership Plan) in Singapore
Your startup is growing,
and you want to attract (and keep) top talent.
One of the most powerful tools?
An Employee Stock Ownership Plan (ESOP) —
because nothing motivates like giving employees a real stake in the game.
Let’s walk through how it works.
1️⃣ What Is an ESOP?
An ESOP is a program that grants employees the right
to purchase or be allocated company shares,
usually after meeting certain conditions.
✅ Aligns employee interests with company growth
✅ Acts as a retention tool
✅ Helps attract top-tier hires who want long-term upside
Example: A fintech startup used an ESOP to lure top engineering talent
who were willing to take slightly lower salaries in exchange for ownership.
2️⃣ How Does It Work in Singapore?
Singapore’s tax and corporate framework allows companies to set up ESOPs,
but you’ll need:
✅ Board approval and shareholder consent
✅ A formal ESOP plan document
✅ Clear rules on vesting, strike prices, and exit conditions
Example: A SaaS company structured its ESOP to vest over four years,
with a one-year cliff — ensuring new hires earned their shares over time.
3️⃣ Tax Considerations
ESOPs have tax implications.
✅ Employees are typically taxed when they exercise options
✅ Companies need to report gains correctly
✅ Work with tax advisors to structure plans tax-efficiently
Example: A media startup nearly faced a tax mess
because they didn’t understand the reporting requirements tied to their ESOP scheme.
4️⃣ Common Pitfalls to Avoid
✅ Not reserving enough shares early (you’ll dilute later)
✅ Poorly communicated plans that confuse employees
✅ Lack of legal documentation, risking shareholder disputes
Example: A healthtech startup had to redo its ESOP mid-growth
because it underestimated how much equity it needed for senior hires.
5️⃣ Why Work With Paperwork.sg?
We:
✅ Advise on ESOP structuring and implementation
✅ Work with legal and tax partners to ensure compliance
✅ Keep your cap table clean and investor-ready