An ESS offers a powerful way to retain high-performing and strategically important team members. When employees begin thinking like owners, the benefits are real: increased motivation, cost awareness, and a shared focus on long-term growth.

The right structure depends on your business’s stage and objectives, whether you’re preparing for succession or scaling up with your core team in place.

Performance Rights
Employees receive the right to acquire shares in the future, typically at a discount, after meeting performance or tenure milestones (e.g., remaining with the business for three years).

Bank-Funded Shares or Options
Ideal for mature businesses with owners looking to reduce shareholding. Employees purchase shares with external financing, often secured by the shares themselves and guaranteed by the business. Loan repayments are structured to come from the employee’s share of profits, keeping the arrangement cash flow positive.

Vendor-Funded Shares or Options
The business provides a loan to help the employee acquire equity. Repayments are made using dividends, meaning the employee builds ownership without upfront personal investment.

Phantom Equity
A useful alternative if you’re not ready to part with real equity. Phantom equity mimics the benefits of ownership—tying bonuses to business performance (similar to dividends). Vesting can be staggered over time to enhance retention.

Are you planning for succession in a mature business, or focused on retaining talent in a growing enterprise?

Your answer will shape the structure:

• Succession-focused: market-value shares with financing support.
• Retention-focused: discounted equity or bonus-based plans to lock in key staff.

Offering discounted shares or options can trigger a tax event for employees, sometimes before they hold or sell their shares.

Listed companies have clear valuation methods and liquidity. In contrast, SMEs face higher valuation costs and liquidity issues, making it harder for employees to cover potential tax bills.

ESS Start-Up Concession
Available if your business is less than 10 years old, this concession defers tax until the employee sells their shares—avoiding upfront tax on discounted equity.

Net Tangible Asset (NTA) Valuation
For businesses under 7 years old or meeting the small business entity criteria, we can use the NTA method to value shares. It’s a cost-effective way to avoid expensive formal valuations—perfect for SMEs offering small equity stakes.

Designing the right ESS is complex—but it doesn’t have to be risky. With expert guidance from Viden Advisory, you can create a structure that benefits both your business and your team, without unintended tax consequences.

Let’s work together to build equity solutions that support your long-term success.

Contact us to speak with an advisor today.