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 the 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.
Grant terms in a US-style plan
Individual grants are made under a stock option agreement that specifies the number of options granted; the strike price, set at fair market value at the grant date and supported by a 409A valuation in U.S. companies; the vesting schedule; the exercise window, typically 90 days post-termination and increasingly extended to 5–10 years for employees who have completed 2+ years of service; and the option type. For U.S. taxpayers that last item carries real money. Incentive Stock Options (ISOs) are tax-favored, available only to employees and subject to limits and holding-period requirements, and offer long-term capital gains on disposition if held appropriately. Non-Qualified Stock Options (NSOs) are available to anyone, including contractors and advisors, and trigger ordinary income on exercise based on the spread between strike price and fair market value: more flexible, less tax-efficient. The choice depends on optionee type, grant size and expected hold period.
Running a plan across a Delaware top-co
After a flip-up, ESOP design has to carry two parallel structures. The Delaware top-co plan grants options over holding-company shares to U.S. employees and to the Turkish employees who receive equity, while the rest of the Turkish team is usually served by Turkish-side instruments: phantom equity, profit-sharing, or beneficial ownership through trust structures, given the Turkish tax and social-security implications of direct equity grants. The work is mostly coordination: plan drafting and adoption, pool sizing, grant policy, ISO/NSO selection, the Turkish-side parallel structure, and the fit with Turkish employment law, KVKK requirements and U.S. and Turkish tax treatment.
Related terms: vesting, cap table, phantom stock.
Sources. Turkish Commercial Code No. 6102. Statute links open the official consolidated Turkish texts on mevzuat.gov.tr.