From a business perspective, what are the most critical factors for business development? Talent. The development of an enterprise can be attributed to the contribution of people, and the decline of an enterprise can be attributed to the problem of people. If enterprises want to develop, they must pay attention to the problem of talents. Finding talent, retaining talent, and using good people are the key strategies for the development of every enterprise. It is difficult for enterprises without talent strategy to achieve sustainable development. As we all know, Ali, Huawei, millet and other excellent enterprises can only achieve today's achievements, which is inseparable from their talent strategy.

In modern enterprise management, equity incentive has become one of the important ways to attract and retain talents. For this reason, many operators are actively planning or promoting equity incentives. However, how to maximize the incentive effect of the equity incentive scheme? This requires operators to make overall consideration from many aspects such as operation, law, tax, etc., and formulate equity incentive plans that suit their own needs. To be specific, should we implement restricted stock incentive or equity option incentive? Is it direct or indirect? If the indirect shareholding model is adopted, should the equity incentive platform adopt the type of company or the type of partnership? These are usually the three problems that operators struggle with most when determining the equity incentive scheme. The above three problems are also the most critical three problems in the equity incentive scheme, and the judgment of improper criteria will affect the effect of equity incentive to a large extent. Jiao Hanwei, lawyer of Shanghai Guolinghouse Law Firm, will discuss the above three core issues involved in the equity (stock, hereinafter referred to as equity) incentive of non-listed companies from multiple perspectives such as law, operation and tax burden in combination with practical experience for operators' reference.

Restricted stock options? Equity options?

Restricted equity incentive means that the incentive party grants a specific share of the company's equity to the incentive object according to the conditions stipulated in the equity incentive plan, but the incentive object is restricted in the transfer of some rights such as the company's equity obtained based on the incentive plan. In essence, restricted shares give the incentive object the equity of the company, but also make certain restrictions on the transfer of the incentive object, set a guarantee and other disposition behavior, when the set conditions are not achieved, the incentive object may not transfer the equity and other disposition behavior. "Give first and then restrict" is one of the main characteristics of restricted stock incentive. In practice, the restriction condition of the motivated party is usually to meet a certain work period or achieve a certain work performance. The restricted stock incentive model is mainly based on two aspects of business considerations, one is to reward the past contributions of the entrepreneurial team or key employees who accompany the company's growth, and the other is to continue to encourage key employees to grow together with the company and create greater value for the company. Restricted stock incentive has the dual effect of reward and incentive. In practice, it is more applicable to the old employees who have made outstanding contributions to the company. In the case of introducing talents or motivating new employees, the restricted stock incentive model is less applicable in principle. The equity option incentive is the right of the incentive object to purchase a certain number of shares of the company within a certain period in the future under predetermined conditions. Compared with restricted stock incentive, stock option incentive does not give equity when implementing equity incentive, but promises to give the company certain equity when the preset conditions are achieved in the future. "Promise first and give later" is one of the characteristics of equity option incentive. Compared with the two, restricted equity is a kind of restricted equity; Equity option is a right to expect the future, is a right to become a shareholder in the future. The consideration of equity option incentive is mainly to encourage key employees to grow together with the company and create greater value for the company in the future. In practice, the incentive object can obtain the corresponding equity only after meeting a certain work period or achieving a certain work performance. In principle, equity options do not have the right to transfer, set up security and other rights before the exercise, nor do they enjoy the right to dividend, and there is a certain uncertainty in the final exercise of the right, so the attraction of the incentive object is weaker than that of the restricted equity incentive. Stock option incentive can not reward the old employees who have made outstanding contributions. It is more suitable for introducing new employees or encouraging new employees to create greater value for the company in the future. Therefore, what kind of equity incentive to implement depends on the business needs of the motivator and the specific situation of the incentive object.

Direct shareholding? Indirect shareholding?

The way of holding shares is another problem that enterprises struggle with most when determining the equity incentive scheme. Is it direct shareholding or indirect shareholding? The so-called direct shareholding means that when the incentive party implements the equity incentive, the incentive object directly grants the equity of the incentive party, and the incentive object is directly registered as the shareholder of the incentive party and enjoys the rights of the shareholder. The advantages of direct shareholding are as follows: (1) Employees directly registered as shareholders of the company will have a stronger sense of security and good incentive effect; (2) Employees directly hold the equity of the incentive party, and when the company achieves IPO, the incentive object can directly sell shares in the secondary market after the lifting of the ban, and the exit path is convenient; (3) The incentive object may apply the deferred tax policy stipulated in Article 101. In the case of the equity incentive in the form of direct shareholding in accordance with the conditions of Ventventi No. 101, the employee may suspend the tax payment at the time of obtaining the equity incentive and defer the tax payment until the transfer of the equity; At the time of equity transfer, the difference of equity transfer income less equity acquisition costs and reasonable taxes shall apply to the item "property transfer income", which shall be calculated and paid individual income tax at a tax rate of 20%. However, direct shareholding also has many disadvantages, such as limited by the upper limit of the number of shareholders and the flow of employees, which will affect the stability of the company's equity structure. In particular, when changes in labor relations require the cooperation of employees in handling shareholder change procedures, if there are disputes between employees and the company on equity change issues, or employees do not cooperate in handling corresponding shareholder change procedures, the enterprise needs to resolve disputes through litigation, arbitration and other means, which will bring great uncertainty to the equity structure of the incentive party, which is not in line with the interests of the company. Nor is it in the interest of other targets of incentives. It is precisely because of its inability to isolate risks well that managers rarely adopt direct shareholding in practice. The so-called indirect shareholding means that when the incentive party implements the equity incentive, it does not directly grant the equity of the incentive party, but grants the incentive object a certain amount of the company equity or enterprise equity of the incentive platform through the establishment of the incentive platform. Compared with direct shareholding, the incentive object is not the shareholder of the incentive party, but indirectly enjoys the interests of the incentive party through the incentive platform, so it is called indirect shareholding. In the indirect shareholding mode, the incentive object is directly registered as the shareholder or partner of the incentive platform, but it is not directly registered as the shareholder of the incentive party, nor does it directly enjoy the shareholder rights of the incentive party, so the risk is well isolated. Compared with the direct shareholding mode, indirect shareholding mode can not only motivate employees well, but also isolate the risks of equity incentive well, taking into account the needs of both operation and law. In the practice of equity incentive, indirect shareholding mode is a mainstream shareholding mode, and enterprises can give priority to it when determining the equity incentive plan.

Company? A partnership?

As mentioned above, indirect shareholding is a mainstream model in the practice of equity incentive. As for the equity incentive of indirect shareholding, the incentive party usually sets up the incentive platform first, and then implements the equity incentive plan through the incentive platform. Generally, there are two types of equity incentive platform: company and partnership. Is the type of company used in determining the type of equity incentive platform? Or is it a partnership type? A company is an enterprise legal person whose shareholders are established in the form of capital contribution in accordance with the provisions of the Company Law, and are liable to the company within the limit of the amount of capital contribution or shares subscribed by them, and the company is liable to the debts of the company with all its independent legal property. The company has an independent legal personality and operates in accordance with the Company Law and the articles of Association. A partnership enterprise refers to a for-profit organization in which partners enter into a partnership agreement according to the provisions of the Partnership Enterprise Law, make joint capital contribution, operate jointly, share benefits and share risks. A partnership does not have the status of an independent legal person and operates in accordance with the Partnership Law and the partnership agreement. As two common forms of enterprise, corporation and partnership have their own advantages and disadvantages. In terms of operating flexibility and tax burden cost, partnership enterprises have advantages, and there are many types of partnership enterprises in small and medium-sized enterprises. In terms of the standardization of corporate governance and the feasibility of capital operation, the company type has advantages, and the vast majority of enterprises adopt the company type in business practice. In terms of equity incentive platform, whether to adopt the type of company or partnership enterprise, the incentive party needs to consider comprehensively from the aspects of platform operation positioning, capital operation planning, tax burden cost and so on. If the equity incentive platform is positioned for the pure purpose of equity incentive, and no other substantive business is carried out in the later stage, and there is no capital operation plan, the equity incentive platform should choose the type of partnership enterprise, because the partnership enterprise management is flexible and the tax burden is low. If the positioning of the equity incentive platform is not only the purpose of equity incentive, but also to carry out other substantive business, or there is a plan to carry out capital operation, the equity incentive platform should choose the type of company, because the corporate form can better meet the above needs. In short, there is no good difference between the form of company and the form of partnership, and the type of incentive used in the practice of equity incentive depends on the positioning of the incentive platform and the business needs of the incentive.

After the above analysis, the operators have a certain understanding of the above three problems in the equity incentive scheme. Each scheme has its advantages and disadvantages, and it is not proper to talk about good and bad metaphysically. Good or bad does not depend on the program itself, but depends on the needs of the operator, depends on the actual situation of the incentive object. What is suitable is the best, and vice versa is bad. When determining the equity incentive plan, the operator should conduct comprehensive evaluation and selection from multiple perspectives such as operation, law, tax burden, etc., to determine the most suitable incentive plan for their own business needs and avoid metaphysics.

Jiao Hanwei

Chief partner and lawyer of Shanghai Guohillhouse Law Firm

More than 10 years of legal service experience and more than five years of business experience, familiar with law, familiar with business, He is good at providing enterprises with legal counsel, brand management, business compliance, business negotiation, intellectual property management, tax planning, equity transfer, corporate structure design, equity incentive, investment and financing, restructuring and merger, dispute resolution and other solutions for the whole stage of enterprise development from the perspective of law and business operation.