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ESOPs — Liminal’s Way to Reward Talent

| November 17, 2023

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Start-ups are the hub of innovative ideas, and they try to inculcate that in every aspect of their organization. ESOPs are a modern, progressive and dynamic method of rewarding the company’s talent.

We at Liminal wanted a motivating and aspiring benefit for our employees. Hence, after extensive research, our team came to the conclusion that the right ESOP policy is a desirable component of an employee benefits package. This benefit is extended to every employee of liminal at their joining.

We are thrilled to announce that Liminal has rolled out an ESOP policy that is benchmarking with the top employee-friendly companies. And this blog will take you through it briefly.

For starters, let us understand what ESOP is.

ESOP or Employee Stock Option is granted in the form of an option for the employees to purchase the shares at a predetermined price on a future date. An equity share, commonly known as an ordinary share, is part ownership where each member is a partial owner of the company. The conversion ratio is 1:1, and our full-time employees can convert one option for one share of the company.

How much time do our employees have to convert their options?

Usually, it has been seen that companies keep a very short span of the Exercise Period of as minimum as 3 months for employees to convert their options. However, we have chosen a very flexible exercise Period of 10 years. The reason behind this is that having a leverage of a longer window will allow our employees to wait for a liquidity event. During liquidity events, employees get a chance to convert their options to shares without paying anything from their pocket.

We would never want our employees’ ESOPs affecting their pockets or lapsing. Hence, we know a decade is a good time and will give our employees peace.

The next question that arises is, how soon and how frequently does Liminal allocate the stock options?

Employees can take advantage of their stock options as soon as they complete 1 year(cliff period), and 25% of their options will be granted.

Our employees are immensely valuable to us, and hence, we have again opted for a very rare and fulfilling way to grant options. The remaining options after the cliff period will be vested every month for 36 months.

This ensures that even if our employees leave mid-year, they are rewarded with ESOPs for the time they have worked for the company.

Do Liminal employees have the option of Accelerated Vesting?

Definitely, yes, accelerated vesting allows our employees to speed up the vesting schedule, which generally occurs post a trigger event. As the holder of an option, they can only exercise options that are vested. There could be options that are granted to them but are not vested, and hence they cannot exercise those options. In this scenario, accelerated vesting kicks in, and these “unvested” options can be vested, thereby allowing them to exercise their rights of converting them to shares of the company.

These trigger events can be:

  • In case of any liquidity event: If the company is getting acquired by some other company or if it is going for an IPO etc., then the unvested shares will get vested
  • In the event of the death of a participant, options get vested in the name of the nominee
  • In the event of a Permanent Incapacity of a participant

Are there any taxes regarding ESOP?

ESOPs can be taxed twice — first, as a prerequisite when the options are exercised, and second, as capital gains when the shares are sold. However, it depends on the local jurisdiction’s tax laws.

How do we manage our ESOP?

We understand that ESOP is relatively something new, and it can be overwhelming to manage and understand. This is why we have onboarded a tool called Carta. Our employees can exercise their vested options on Carta’s platform.

Who is eligible for ESOP?

It is the contribution of each employee which is making Liminal grow, and hence, there are no exceptions to the policy. Every Liminal employee is eligible for and is granted ESOPs. They already are partners in the company’s growth, why not make them real partners through ESOPs?

In the end, we believe this scheme will help our employees feel a greater sense of ownership, oneness, and pride. Liminal will always make sure that each employee feels financially and emotionally rewarded.

Learn more about Liminal here.

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