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SECP allows private companies to offer ownership rights to employees

ISLAMABAD: Securities and Exchange Commission of Pakistan (SECP) on Wednesday said that private companies especially startups are allowed to offer ownership right to their employees as non-monetary compensation for their intellectual services and promotion of their business.

Employee Stock Option Plan (ESOP) is a popular method of attracting, motivating, and retaining employees. Stock Option Plans permit employees to share in the company’s success without requiring a startup business to spend precious cash, the SECP said.

As a step forward to facilitate corporate sector, the SECP hereby clarifies that private companies especially startups can offer ownership rights to their employees as a non-monetary compensation for their intellectual services and promotion of their business.

A private company may offer shares to its existing shareholders in accordance section 83(1)(a) of the Companies Act, 2017, and if the whole or any part of the shares offered is declined or is not subscribed, such shares can be offered to its employees under pre-determined contractual arrangements.

Option for employees to own a company they work for proves to be a highly motivating factor to increase productivity and efficacy which startups immensely require at their initial stages of business commencement. The trend of offering shares to employees is globally more prevalent in startups who might not be able to afford hefty compensation packages for their employees.

Therefore, in order to accelerate business growth in Pakistan, the SECP encourages private companies and startups to avail the opportunity of offering Stock Option Plan which gives them the flexibility to award stock options to employees to buy stock in the company when they exercise the option.