Intro to STAK

About the plan

The STAK plan is a tax efficient type of ESOP commonly used by Dutch companies. STAK (Stichting administratiekantoor plan) is a trust set up by the company to allow employees to own the so-called depository receipts (DRs). Put simply, DR-holders have financial rights of a shareholder without the decision-making powers.

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Asset type

First, the company transfers the company shares dedicated to the ESOP pool to STAK. Second, the STAK issues DRs to the employees. Formally, DRs are legal documents that give their owner the right to economic benefits linked to a specific number of shares in the company. 

Employees typically receive options to buy DRs rather than actual DRs, which means they have to pay exercise price to convert their options to assets. The exercise price should correspond to the fair market value at grant.

Best for

The STAK plan is ideal for mid-sized to large Dutch startups but also works for other European companies.

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Employee rights

DR holders have economic rights associated with shares but don't have any voting or other shareholder rights. These are held and exercised by STAK represented typically by the company’s founders.

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Cap table effects

STAK owns the company shares and, for that reason, appears on the cap table as shareholder. As a result, the existing shareholders are diluted. On the other hand, the DR holders don't appear on the cap table.

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Payout

Options to DRs aren't liquid assets. Liquidity comes into play when options are exercised and converted into DRs.  At that point, the employee becomes entitled to dividends and can sell their DRs on a secondary market.

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Taxation

There’s typically no taxation at grant if the options to DRs are acquired for at least fair market value. On exercise, the difference between the current fair market value and exercise price is usually taxed as employment income. Income from sale of DRs is then taxed as capital gain. 

But taxation laws vary across countries. Make sure to consult tax professionals to confirm the exact treatment in your location. If you need any help, schedule a call with our legal team here.

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Implementation steps

1. Create STAK: Incorporate STAK as a separate legal entity.
2. Authorize ESOP pool: Create and approve your options pool. 
3. Transfer company shares to STAK: As a result, STAK becomes the company shareholder and holds the shares dedicated to the ESOP pool.
4. Design the plan: Define plan parameters like eligibility, vesting, payout events etc. 
5. Draft and approve documents: You’ll need a Depository Shareholder’s Agreement including terms, conditions and exercise price.
6. Give awards: Sign Depository Shareholders’ Agreements with employees.
7. Inform your employees: Educate employees about the plan, its benefits and tax treatment
8. Manage the plan: Make new awards, manage leavers and exercise rounds, keep track of vested assets and handle dividend payout. 

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Pros & cons

Pros:

• Tax efficient after exercise (capital gain)
• Decision and voting rights stay with the company
• Internationally recognized

Cons:

• Complex implementation and management
• Fairly difficult to switch to a different plan
• Tax treatment can vary for international employees

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Something extra

Considering introducing an ESOP for your Netherlands-based company? Dive into our blog post to get all the essential insights on how to roll out ESOP in the Netherlands. Discover more here.