Finding talent, retaining talent, and using good people are the key strategies for the development of every enterprise. It has not changed since ancient times. Equity incentive changes the simple employment relationship, makes the incentive object have a stronger sense of belonging and achievement, meets the deeper spiritual needs of the incentive object, greatly mobilizes the enthusiasm and initiative of the incentive object, and realizes the win-win situation of enterprise development and talent development. In modern enterprise management, equity incentive has become one of the important means for enterprises to attract and retain talents. Many operators have recognized this problem and are actively planning or promoting equity incentives. When it comes to equity incentive, in addition to the choice of incentive mode, "shareholding mode" is another important issue that enterprises have to consider in equity incentive. In the restricted stock incentive and stock option incentive model, which total shareholding mode should be applied? Direct shareholding? Indirect shareholding? Or is it entrusted to hold shares? In practice, very few operators are very clear. Jiao Hanwei, lawyer of Shanghai Guolinghouse Law Firm, will discuss the shareholding mode of equity incentive from two perspectives of law and operation in combination with the practical experience of equity incentive, so as to provide reference for operators.

About the direct shareholding method

The so-called direct shareholding means that when the incentive party implements the equity incentive, it directly grants the equity rights or shares of the incentive party to the incentive object (hereinafter referred to as equity rights); The incentive object is directly registered as the incentive shareholder and enjoys the rights of the shareholder. The advantages of direct shareholding are: (1) Employees directly registered as shareholders of the company, employees will have a stronger sense of security, and the incentive effect is good. (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. However, the direct shareholding method also has many disadvantages, specifically: (1) According to the Company Law of our country, a limited liability company is established by less than 50 shareholders; For the establishment of a joint stock limited company, there shall be not less than two but not more than two hundred sponsors, of whom more than half shall have domiciles within the territory of China. Therefore, China's law has a scale limit on the number of shareholders of limited liability companies and promoters of joint stock companies. If the number of equity incentive objects is large, it may exceed this upper limit. (2) Equity incentive is an enterprise's incentive method for employees based on the extension of labor relations. The labor relations have great instability and stages. However, the change procedure of the company's shareholders is very cumbersome. If the labor relationship changes after the employee is registered as the company's shareholder, the employee needs to cooperate with the shareholder change procedure, which will lead to the instability of the incentive party's ownership structure. If the employee disputes the issue of equity change with the company, or the employee does not cooperate in handling the corresponding shareholder change procedures, the company needs to resolve the dispute through litigation, arbitration and other means. In this way, it will bring great uncertainty to the ownership structure of the incentive, which is not in line with the interests of the company and the interests of other incentive objects. Because the risk cannot be well isolated, direct shareholding is rarely used in practice.

About indirect shareholding

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 not directly registered as the incentive shareholder, and does not enjoy the rights of the shareholder. The disadvantages of indirect shareholding are: (1) Employees are not directly registered as shareholders of the company, so the sense of security of employees is poor, and the incentive effect is poor compared with that of direct shareholding. (2) Employees do not directly hold the shares of the incentive party, and the incentive object cannot directly sell shares in the secondary market when the company achieves IPO. If the major shareholder does not commit to buyback, the exit path of the incentive object is limited. (3) In certain circumstances, double taxation may be involved. However, indirect shareholding has incomparable advantages over direct shareholding, specifically: (1) When the incentive platform is a company type, since the incentive platform is an independent company and the incentive object is not like the incentive shareholder, it can meet the needs of large-scale incentive personnel within a certain range. Of course, if the incentive platform is a partnership type, it does not have this advantage, because when the incentive platform is a partnership, the number of shareholders needs to be calculated through. (2) In the indirect shareholding mode, employees are not the shareholders of the incentive party, and when the labor relations of employees are changed, they do not need to cooperate with the change procedures of the incentive party's shareholders, which maintains the stability of the incentive party's ownership structure. (3) Since employees only hold the equity of the incentive platform or partnership equity, and do not directly hold the equity of the incentive party, legal risks can be well isolated in case of labor disputes between the incentive party and employees. The isolation of incentive risk in indirect shareholding mode not only protects the interests of the incentive company, but also protects the interests of other incentive objects, so it is a mainstream shareholding mode in practice.

About the way of equity holding

The so-called equity holding means that employees do not directly hold the equity of the incentive party, nor indirectly enjoy the equity of the incentive party through the incentive platform, but entrust others to hold the equity of the incentive party or hold the equity or equity of the incentive platform on behalf of others. Under the equity entrusting mode, employees are not registered as the shareholders of the incentive party, nor as the shareholders or partners of the incentive platform, but only enjoy the corresponding contractual rights and interests of the agent through the entrusting agreement signed with the agent. The share holding model is a kind of legal relationship based on the share holding agreement. Because of the relativity and uncertainty of the contract, whether employees are willing to let others hold the equity of the company on their behalf largely depends on the degree of trust employees have in the trustee. Compared with direct holding and indirect holding, the employee's sense of security is the weakest and the incentive effect is the worst. It is precisely because of the uncertainty of equity entrusting behavior that China's current listing rules do not allow the situation of equity entrusting, and the equity incentive using the entrusting model needs to be restored before listing. When holding shares on behalf of the restoration, not only the formalities are complicated, but also may produce tax problems. Of course, the equity holding model also has its advantages, not only can a lot of risk isolation, but also easy to adjust when changing, with great flexibility. In view of the problems such as poor incentive effect and restoration of enproxy holding, enproxy holding is not a mainstream holding method in practice.

In addition to the direct holding methods, indirect holding methods and equity holding methods discussed above, there are also non-mainstream ways in practice, such as trust plan and asset plan, which are rarely adopted due to compliance problems, so this paper will not go into details. Through the comparison of direct shareholding mode, indirect shareholding mode and share holding mode, it is not difficult to find that indirect shareholding mode can not only motivate employees well, but also isolate the risk of equity incentive well, taking into account the needs of both operation and law, and is a mainstream shareholding mode in the practice of equity incentive. Enterprises can give priority to equity incentive shareholding methods when considering them.