How to set up an ESOP in a Singapore company

An employee share option plan (ESOP) lets you pay people partly in future ownership. For a venture-funded startup it is how you hire ahead of your salary budget. For the Singapore subsidiary of an overseas group, it is usually how local hires join the parent’s plan. Either way, the plan only works if it is set up properly and the records behind it are clean when an investor or acquirer looks.

This guide covers the set-up. For what happens at tax time, see ESOPs in Singapore: when the tax hits and how to plan for it.

Step 1: Decide the size of the pool

The pool is the number of shares set aside for options. Early-stage companies commonly reserve around 10% to 15% of the fully diluted share capital, and investors often ask for the pool to be created or topped up before they invest, so the dilution falls on existing shareholders.

You do not need to issue the pool shares up front. The pool is a number recorded in your plan and your cap table. Shares are issued only when options are exercised.

Starting a new company? Our Founder Setup package sets the share count and cap table with room for the pool from day one.

Step 2: Write the plan rules

The plan rules are the master document. Each employee then gets a short grant letter under them. The rules should settle:

• Who is eligible: employees only, or also directors, advisers and staff of group companies.
• Vesting: four years with a one-year cliff is the common pattern, but it is your choice.
• Exercise price and exercise window: what the employee pays, and how long they have to exercise.
• Leavers: what happens to vested and unvested options when someone resigns, is dismissed or is made redundant.
• Exit events: whether vesting accelerates on a sale or listing.
• Administration: who approves grants. Usually the board, or a committee of it.

Step 3: Get the approvals

• Board resolution adopting the plan and fixing the pool.
• Shareholder approval. Directors need shareholders’ authority to issue shares, so the plan and the pool are normally approved by shareholders’ resolution.
• Investor consents. Check your constitution and shareholders’ agreement for pre-emption rights and reserved matters. Most require investor consent for a new plan or a larger pool.

Offers of shares to employees generally fall within an exemption from Singapore’s prospectus rules. Your lawyer should confirm this for your plan, particularly if advisers or overseas staff are included.

Step 4: Grant, record, repeat

Each grant needs a board approval and a signed grant letter. Keep one option ledger that shows, for every holder, the grant date, number of options, vesting schedule, exercise price, and what has vested, been exercised or lapsed. This ledger is the first thing an investor’s lawyers ask for.

What is filed with ACRA, and when

Nothing is filed when you adopt the plan or grant options. A filing is needed only when an option is exercised and shares are allotted. The allotment is lodged with ACRA, which updates the company’s electronic register of members. From that point the employee is a shareholder, with the rights your constitution and shareholders’ agreement give them.

If your Singapore company is a subsidiary

Singapore staff usually receive options or share awards in the overseas parent. The plan documents are the parent’s, but the Singapore employer still has work to do: reporting the gains to IRAS each year, handling tax clearance when a foreign employee leaves, and often bearing a recharge from the parent. If you are hiring on an Employment Pass, how the equity is structured also affects the application. See how to structure an equity-heavy offer for an Employment Pass.

Mistakes we are asked to fix

• Options promised in offer letters or emails, with no plan behind them.
• Grants made without a board approval, or beyond the approved pool.
• A cap table that does not match the option ledger or ACRA’s records.
• Exercised options where the shares were never allotted.

Each of these is fixable, and much cheaper to fix before a funding round than during one.

This article is general information, not legal or tax advice. Based on the Companies Act 1967 and ACRA guidance as at November 2026.