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Employee Benefit Trusts (EBTs) gain popularity in Asia

9 August 2022

Samuel Chang

Commercial Director, APAC

Samuel Chang

Commercial Director, APAC

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From start-ups to multinationals, a wide range of companies are using Employee Benefit Trusts (EBTs) and Employee Share Ownership Plans (ESOPs) to attract and retain staff. We explain how to set one up

More and more companies are using EBTs to provide staff share incentives.

Such trusts are a powerful recruitment and retention tool, particularly for start-ups that may face challenges with cash flow and may be unable to pay high salaries to attract talented employees.

The trusts are also popular because they send a strong message to employees and potential employees. As many companies struggle to hire because of the Great Resignation, EBTs and the associated share incentives are attractive perks.

We’ve seen rising numbers of new tech businesses choosing EBTs, which allow employees to participate in a company’s growth.

Larger companies headquartered in countries such as South Korea, China and Southeast Asia are also increasingly using EBTs to reward hundreds of employees.

The trusts can be set up in offshore locations (such as Hong Kong, Singapore and Jersey) to minimise administrative burdens and benefit from jurisdictional expertise.

What is an EBT?

An EBT holds a company’s shares for the benefit of employees. There are two types:

  • One is for key employees at a start-up – 10 or 20 people. This is a valuable way to motivate talent as a company launches and starts to grow.
  • The other is for all employees – often because there’s a philosophy that everyone should “own” the company.

EBTs are usually set up before an initial public offering (IPO) or other liquidity events, such as a new round of funding.

In the Asia-Pacific region, we see a lot of tech start-ups using the first type of EBT, which is typically shaped as an ESOP.

Example companies could be in artificial intelligence, e-commerce, medical technology or battery storage. Key regions include Thailand, Indonesia, South Korea and China.

A trustee is appointed to oversee the trust’s administration. This is often provided by an independent administrator.

The scheme’s rules are drafted by a legal adviser. These refer to the number of shares that employees will be entitled to and how often they will be distributed. After the rules are fixed, the trust deed can be executed and the arrangement is established.

Setting up the trust structure can be done swiftly – taking about eight to six weeks from when the company decides it wants to issue shares.

Why are EBTs becoming more popular?

The rise in companies setting up EBTs or ESOPs in Asia-Pacific has largely been driven by the rapid growth of tech industries in the region.

When I joined Intertrust Group in 2017 there was already some traction. Within three years, the Chinese IPO boom and rapid growth in innovation and entrepreneurship in Southeast Asia had turbocharged the trend.

What are the benefits of EBTs?

There are several benefits for both owners and employees. For the employer, EBTs are highly flexible and can be tailored to meet corporate objectives.

For a multinational, an EBT can provide a common incentive to employees around the world.

Setting up an EBT creates a market and ready buyer for the company’s shares. Dilution of shareholdings can be avoided if existing shares – rather than new ones – are used.

EBTs and ESOPs let employees participate in the company’s growth – which could translate into a large cash bonus when the shares are eventually sold. An EBT can also foster a greater sense of belonging for employees, giving them a stake in the company and its performance.

Spotlight on a north-Asian EBT

Intertrust Group can help small firms and start-ups in Asia-Pacific to set up an EBT from our Hong Kong and Singapore offices. This can be helpful from a time zone perspective.

Larger EBTs – with more than 20 employees – are more complicated. However, we can partner with our colleagues in Jersey, who have huge experience in this field and a much longer history of creating EBTs. Jersey also has a robust and sophisticated legal regime.

Last October a travel tech company in North Asia asked us to help set up a trust for more than 200 participants. We established it in Jersey. The rules there meant that we did not have to do onboarding for all employees – an onerous task involving a full check on every participant’s details, such as address and passport.

The workforce was based in several jurisdictions, so we worked closely with a global law firm and a tax adviser.

The planning was time sensitive. We worked quickly under pressure to set up the trust before Christmas.

We also recently assisted another North Asian company – a biotech firm – that was considering a liquidity event. We engaged our Jersey office to set up an EBT for about 200 employees.

What’s next for EBTs in Asia-Pacific?

We expect the number of Asia-Pacific EBTs and ESOPs to continue to rise. We also anticipate engaging our Jersey office more frequently, as the trend for EBTs with a large number of participants grows.

This will be down to more tech start-ups scaling up and preparing for IPOs, while an increasing number of companies are looking to enhance employee benefits in a bid to attract and retain staff.

Why Intertrust Group?

  • Our private wealth team in Hong Kong and Singapore can assist in setting up and running EBTs and ESOPs for all types of companies from small start-ups to multinationals.
  • We have extensive knowledge of regulations in Asia-Pacific as well as offshore jurisdictions
  • Intertrust Group recently won the WealthBriefingAsia Award 2022 for Independent Trust or Fiduciary Company (Greater China), the sixth time it has scooped this award.
  • Intertrust Group is a publicly listed company with more than 4,000 professionals and 70 years’ experience providing world-class trust and corporate services to clients around the world.

 

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