ESOPs in Nigeria: Legal & Tax Basics (2025)

• ESOP = options to buy shares later at a set price after service/targets are met.
• Pool: many Nigerian startups set aside 5–15% fully diluted, adjusted at fundraising.
• Vesting: common default is 4 years with 1‑year cliff; fine‑tune for senior hires.
• Docs: Plan rules + board/shareholder approvals + grant letters + option register.
• Compliance: update registers, lodge filings after allotments, keep PSC data aligned.

• Share options (most common): right to buy ordinary/preferred shares at an exercise price.
• RSUs/Restricted shares: actual shares delivered on vesting; consider buy‑back rights for leavers.
• Phantom/SARs: cash‑settled benefits tracked to share value—useful where foreign exchange or control issues exist.
• Trust/nominee structure: hold shares centrally for employees to simplify administration.

Pick an instrument that fits your stage, investor preferences and regulatory footprint.

Model headcount growth and hiring tiers (execs, engineering, GTM) to size the pool. Align pool increases with financing rounds to avoid unexpected founder dilution.

Role	Typical band (options as % of FD)
Senior exec (non‑founder)	0.5–2.0%
Engineering lead	0.2–0.8%
Key IC (eng/product/sales)	0.05–0.3%
General staff	0.01–0.05%

Bands vary by stage/market. Keep a written framework to ensure fairness and budget control.

• Standard vesting: 4‑year schedule, 1‑year cliff, then monthly/quarterly vesting.
• Performance vesting: layer targets for sales/leadership grants.
• Leavers: define good/bad leaver; set post‑termination exercise windows (e.g., 90–180 days for good leavers).
• Change of control: consider partial acceleration (e.g., 25–50%) with board oversight.

1. Plan rules (eligibility, pool, vesting, leavers, exercise, buy‑back, governance).
2. Board & shareholder approvals to adopt the plan; amend Articles if needed (share class, pre‑emption, buy‑back).
3. Grant letters for each participant plus cap table entry/option register.
4. Valuation & exercise price policy (arm’s‑length basis; update at rounds).
5. Trust/nominee deed if using a central vehicle; set trustee powers and reporting.

• On exercise/allotment, update the register of members and file the relevant allotment returns on the CAC portal.
• Update PSC records where a participant becomes a PSC; reflect in annual returns.
• Maintain a clean option register (grants, vesting, exercises, lapses, buy‑backs).
• Keep board/shareholder minutes for all pool changes and major grants.

Tax outcomes depend on plan design and current rules. As a general guide for employees:

• Grant: usually no tax where options are granted at market terms with risk of forfeiture.
• Vest/Exercise: a taxable benefit can arise where value is received; employers may have PAYE obligations. Build payroll processes for timely withholding/reporting.
• Sale: gains on disposal of shares may be subject to tax under applicable rules. Keep acquisition cost and holding period records.

This is high‑level, not tax advice. Nigerian rules evolve; coordinate with your tax adviser on PAYE, CGT, stamp duties and any exemptions/reliefs.

• Expense options over the vesting period per applicable standards; re‑measure cash‑settled awards (phantom/SARs).
• Disclose share‑based payment policies in financial statements; keep grant date fair values and assumptions.
• Synchronise HR, payroll and finance data monthly.

• Check securities law and tax rules for employees/contractors outside Nigeria.
• Consider a phantom plan for countries where equity issuance is complex.
• Document grant acceptance electronically; maintain KYC and residency records.

1. Model pool (5–15% FD baseline); align with fundraising.
2. Choose instrument(s): options, RSUs, phantom/SARs.
3. Draft plan rules; approve by board & shareholders; update Articles if needed.
4. Set valuation/exercise price; prepare grant letter templates.
5. Roll out grants; set up option register and workflows.
6. Integrate payroll for withholding/reporting on exercises.
7. File CAC allotment returns after exercises; update PSC where relevant.
8. Quarterly audit of cap table and option register.

Can contractors get ESOP?

Yes, but confirm tax and securities implications. Some companies use phantom/SARs for contractors.

What happens if we move HQ abroad?

Keep Nigerian subsidiary plans aligned with group rules; review tax, exchange control and cross‑border securities rules.

Can we cancel options and re‑grant at a lower price?

Possible with proper approvals and careful tax/accounting treatment. Document rationale and maintain fairness.