What is an ESOP (Employee Stock Option Plan)?
An ESOP is a program under which a company grants employees the right to acquire shares at a predetermined price, usually after a vesting period. The goal is alignment: employees share in the value they help create, and the company conserves cash while competing for talent. In startup practice the option pool typically covers 10 to 15 percent of the fully diluted cap table and is refreshed at financing rounds.
How an ESOP works in practice
The core mechanics are the grant (the promise), vesting (the schedule over which the right becomes exercisable, commonly four years with a one year cliff), exercise (paying the strike price to receive shares) and settlement (shares, or in some plans a cash equivalent). Termination clauses matter as much as the headline numbers: good leaver and bad leaver definitions, post-termination exercise windows and company repurchase rights decide what an employee actually keeps.
ESOPs under Turkish law
Turkish joint stock companies can support option plans through conditional capital increase under Articles 463 to 465 of the Turkish Commercial Code, through treasury shares within the 10 percent limit, or contractually through phantom arrangements that settle in cash. Employment law treats acquired benefits carefully, so plan documents should state that grants are discretionary and not part of base remuneration. On tax, Türkiye introduced a dedicated income tax exemption for share grants in qualifying technology startups, with the benefit tied to how long the employee holds the shares; the details and the general taxation of exercises are covered in our guide on employee stock option plans in Türkiye. Founders who flip up to a Delaware or Cayman holding usually migrate the plan to the new topco, which raises its own tax and contract questions.
How large should the option pool be?
Most Turkish startups reserve 10 to 15 percent of fully diluted capital. Investors typically require the pool to be created or topped up before the round, so the dilution lands on founders. Model this before agreeing a term sheet.
What happens to options when an employee leaves?
Unvested options almost always lapse. For vested options the plan decides: a limited exercise window, a company buyback at fair value or forfeiture in bad leaver cases. Turkish plans often prefer buyback mechanics because keeping ex-employees off the cap table simplifies later rounds.
Can a Turkish limited company (limited şirket) run an ESOP?
It is harder. Share transfers in a limited şirket require notarised transfer and general assembly approval, which makes option mechanics clumsy. Most companies either convert to a joint stock company first or use phantom stock that pays cash instead of shares.
Related terms: vesting, cap table, phantom stock.
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