What was broken
A growing fintech company wanted to introduce employee stock options to attract and retain senior talent, but had no scheme in place. The founders needed an ESOP that was legally sound, tax-aware for employees, and acceptable to future investors — not an informal promise that would unravel at the next round.
What we did
CapEasy designed the ESOP end to end — the scheme document and pool sizing, board and shareholder approvals, the grant, vesting, and exercise mechanics, and the statutory filings — while briefing the company on the tax treatment at grant, vesting, and exercise. The scheme was built to withstand investor diligence.
Where it landed
The company implemented a compliant, well-documented ESOP that it could offer to employees with confidence. The framework strengthened retention and stood up cleanly in subsequent investor conversations.
Australia has its own version of this same trap
The failure pattern is identical everywhere: a founder tells a senior hire "you'll get equity" and moves on, meaning to formalise it once things are less busy. That promise always unravels eventually — at a statutory filing, or in the next round's diligence. In Australia it unravels against a specific, named concession — the ATO start-up concession under Division 83A of the Income Tax Assessment Act 1997 — that only applies to interests issued under a documented scheme, on terms fixed before the interest is granted. A verbal promise cannot retroactively qualify.
The company-side conditions for that concession are concrete and worth knowing before you promise anything: the company (and every company in its corporate group) must be unlisted and incorporated for less than 10 years, with aggregated turnover under a threshold set out on the ATO's start-up concession page. Options must carry an exercise price at or above market value; discounted shares are capped at a modest discount to market value. None of that can be checked, let alone met, from a verbal understanding — it has to be checked against a scheme document before the grant goes out.
Who actually reads the scheme document
Three different readers consume this paperwork, and each wants something different from it. Your registered BAS or tax agent needs the grant dates, exercise prices and vesting terms to advise on whether a given interest genuinely qualifies for the start-up concession — a call that sits with them, not with the company. ASIC's disclosure and licensing relief for employee incentive schemes, set out in Regulatory Guide 49, is conditional relief: it applies only when the offer sits inside the structures and general conditions the guide describes, which means the scheme has to be built to fit the relief, not adjusted to fit it after employees have already been offered interests. And a future investor's diligence team reads the same scheme document the way a US investor's counsel reads a cap table — as the thing every option grant has to trace back to.
The practical implication is ordering: the scheme document, pool sizing and board approval come first, on paper, before a single offer goes to an employee. Retrofitting a scheme around promises already made is the harder version of the same job — reconstructing intent instead of documenting a decision.
What "papered properly" means once someone exercises
A grant that qualifies for the start-up concession is not the end of the paperwork — it changes what the company owes the ATO and what the register has to reflect. Employers running an ESS have annual reporting obligations to the ATO covering every interest granted, vested or disposed of in the year, on a fixed calendar described on the ATO's employer reporting requirements page, separate from providing each participant the statement they need for their own tax return. Missing either is a compliance gap that exists regardless of whether the underlying grants were properly documented.
Once options are exercised, the resulting shares have to land correctly in the company's own records — the register of members updated to reflect who actually holds what, on the timeline the Corporations Act sets for entries following an issue. This is the same principle as the cap table work in the sibling US playbook: an investor's diligence does not accept a spreadsheet that looks right, it wants every row traceable to a signed grant, a board resolution and a register entry that agree with each other.
What to take from it
- The ATO start-up concession only reaches interests issued under a documented scheme with terms fixed before grant — a verbal promise cannot qualify retroactively.
- ASIC's RG 49 relief for employee incentive schemes is conditional: build the scheme to fit the relief's structures and general conditions, not the reverse.
- Exercise price at or above market value, and a defensible valuation behind it, is a scheme-design decision — not something to improvise at the exercise date.
- ESS annual reporting to the ATO, and statements to each participant, run on a fixed yearly calendar that is separate from the grant paperwork itself.
- A grant only becomes real on the register when the exercise updates the members register — the discipline is the same one a US round's diligence checks for on a cap table.