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Typical range is between 5% and 20% of the company's fully diluted capitalization.
An equity incentive program offers an employee shares of the company they work for. Shares can be awarded through stock options, stocks, warrants, or bonds.
ESOPs are designed for prolonged, sustained growth by a business, and for a business that intends to operate for 10, 20, or more years into the future. An Equity Incentive Plan, in contrast, is geared more toward a change of control and exit from the business by service provider employees in 3-5 years (or less).
What are equity incentive plans for LLCs? An equity-based compensation plan for an LLC is a written agreement that explains how the company shares ownership with employees and consultants. It's a way to compensate your employees and independent contractors beyond salary and cash bonuses.
Whereas a stock bonus plan is not required to invest in employer securities, an ESOP must invest primarily in employer securities, to the extent that employer stock is available. The employer can contribute company stock directly to the plan.
Shares can be awarded through stock options, stocks, warrants, or bonds. Stock options are the most common and recognizable form of employee equity. Employee equity incentive plans are popular recruitment tools for startups that may not have a steady cash flow or great profits as they're still in the early stages.
The most notable difference between an ESOP vs ESPP is in how the employee receives the stock and when they can sell the stock. ESOPs provide the stock or shares at no cost to employees. ESPPs require participants to contribute funds to purchase shares of stock, though at a discounted rate.
Sweat equity shares are shares issued to the directors/employees of a company at a discount or for non-cash consideration, for contributing to the company in the form of technical expertise or intellectual property. ESOPs are issued as an incentive to retain the top talent in the company.