ESOP Liquidity Event planning - Buyout of ESOPs by Company

Buy-out of ESOPs or options is legally different from buy-back of shares. Even though, we have handled buy-back of shares, the narration here is about the buy-out of ESOPs.

An unlisted client as an ESOP structure had prescribed exercise and monetization of ESOPs upon few liquidity events. As there were chances that such predefined Liquidity events may or may not occur, there was a residual liquidity avenue for the employees i.e. company to liquidate subject to certain level of cash availability. This cash buy-out was planned at the inception after projecting the cashflow status.

The cash buy-out (i.e. cash settlement of ESOPs) was carried out with structured documentation, accounting, and tax advisories. The company was able to save equity as the ESOPs were traded-off with cash.

All stakeholders were happy