Incorporating a company & ESOP — company type, charter capital and the employee share pool
🎯 Goal: Learn to pick a company type suited for fundraising, understand charter capital and founding shareholders, and know how to SET ASIDE an ESOP pool and compute its dilution impact — all checked against Vietnam’s Enterprise Law 2020.
To raise capital and split ownership clearly, most startups choose a joint-stock company (JSC) because shares are easy to slice, transfer, and issue in later rounds. This lesson covers three pillars: charter capital (a contribution commitment, not cash sitting in the account), the role and constraints of founding shareholders, and ESOP — a share/option pool for employees (typically ~10%). You’ll learn the step-by-step incorporation flow against the Enterprise Law 2020, how to read a cap table, and how to compute dilution when you raise. This is for LEARNING; for real execution you need a lawyer.
Lesson content
🔍
What is a JSC and why do startups pick it? A joint-stock company splits ownership into shares — equal "slices" with a par value — so it’s easy to sell to many people, split ratios, and issue more when raising. A quick comparison of common VN types:
Type
Ownership split
Good for many investors?
Household business
No shares
No
Sole proprietorship
1 owner, unlimited liability
No
Limited liability company
By capital contribution, hard to slice
Limited
Joint-stock company
By shares, easy to split & transfer
Very suitable
Charter capital is the total par value of shares that shareholders have registered to buy — a capital-contribution commitment, NOT "cash always sitting in the account". Registering a high figure but not contributing fully on time breaks the law.
🏛️
A 6-step framework to incorporate a JSC — against Enterprise Law 2020: ① Enough shareholders: a JSC needs at least 3 shareholders, no upper limit. ② Founders ≥20%: founding shareholders must together register to buy at least 20% of the total ordinary shares offered at incorporation. ③ Charter capital & par value: pick a sensible figure; most sectors need no minimum (except conditional sectors). ④ Contribute within 90 days: capital must be fully contributed within 90 days of receiving the enterprise registration certificate; a shortfall means adjusting the capital. ⑤ Draft the Charter + register: file at the Department of Planning & Investment (DPI), get the registration certificate, seal, and tax code; spell out ESOP and voting rights in the Charter. ⑥ 3-year transfer limit: in the first 3 years, founding shareholders may freely transfer only to other founders; selling to outsiders requires approval of the General Meeting of Shareholders (GMS).
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TOOL: ESOP option pool & the cap-table DILUTION impact. An ESOP usually reserves ~10% of shares. Key point: whether you reserve the pool BEFORE or AFTER raising decides who gets diluted. An illustrative example (rounded numbers for clarity): Before raising — founders 90% + ESOP 10%:
Party
% ownership
Founders (3 people)
90%
ESOP pool
10%
After the round — the investor buys 20% of the company (post-money): every existing holder is multiplied by 0.8.
Party
Before
After (×0.8)
Founders
90%
72%
ESOP
10%
8%
New investor
0%
20%
⚠️ If the investor demands ESOP be 10% counted AFTER the round while the pool is now only 8%, you must "top up" by 2% — and that top-up comes mostly from founders, diluting them further. Lesson: reserving/topping up the option pool is a real dilution event — factor it into negotiations.
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VN case study (illustrative, hypothetical) — startup "GreenBox" incorporates a JSC + reserves ESOP, step by step: ① Three friends An, Binh and Chi team up to form a JSC (meeting the ≥3-shareholder rule). ② They agree the pre-raise cap table: An 34%, Binh 30%, Chi 26%, ESOP 10% reserved up front. ③ They choose charter capital of 2 billion VND, par value 10,000₫/share → 200,000 shares; they commit to contribute fully within 90 days. ④ The three founders together register to buy ≥20% of ordinary shares (the founder condition) and sign a 4-year vesting, 1-year cliff commitment to protect the team. ⑤ They draft a Charter spelling out ESOP, voting rights, dividend rules; file at the DPI and receive the registration certificate, seal, and tax code. ⑥ They pass a GMS resolution approving the 10% option pool and the vesting rules; register tax, e-invoices, and a digital signature. (Figures are illustrative examples for LEARNING.)
⚠️
5 common traps: • Forgetting to reserve the pool before raising: creating an ESOP after all shares are allocated → that 10% comes out of existing stakes, so founders dilute themselves. • Confusing charter capital with cash: registering a big number "for show" but not contributing fully within 90 days → unlawful, must be adjusted. • Fewer than 3 shareholders: only 2 people yet insisting on a JSC — not eligible; add a co-founder/advisor or pick another type and convert later. • No vesting: granting shares "in one lump" from day one, so an early leaver keeps all their shares → the remaining team loses out. • A 50/50 split or too many founders: prone to voting deadlock and a messy cap table, harder to raise.
✅
Incorporation + ESOP checklist: ① At least 3 founding shareholders, with % clearly agreed. ② Founders together register ≥20% of ordinary shares; understand the 3-year transfer limit. ③ Pick a sensible charter capital and plan to contribute fully within 90 days. ④ Reserve ~10% ESOP BEFORE raising, written into the Charter. ⑤ A vesting policy (e.g., 4 years, 1-year cliff) for founders and option-holding employees. ⑥ A GMS resolution approving the ESOP; complete tax, e-invoices, digital signature, and a bank account. ⑦ Draw the cap table and pre-compute dilution for the planned round.
⚖️
Legal disclaimer: all content, figures, and templates here are for LEARNING only, not legal or financial advice. Laws and procedures can change, and each sector/situation has its own rules. When you actually incorporate and design an ESOP, you must work with a lawyer and an accountant to comply with the Enterprise Law 2020 and related regulations.
Practice exercise
🔬 APPLIED EXERCISE: Sketch a cap table for a hypothetical JSC of your team. (1) List 3 founding shareholders with their %, summing to the founders’ portion. (2) Reserve ~10% for ESOP from the start. (3) Pick a sensible charter capital and a par value → derive the number of shares. (4) Note who vests over how long (e.g., 4 years, 1-year cliff). (5) Assume an investor buys 20% of the company and recompute each party’s % AFTER the round (multiply existing holders by 0.8). Template: "Name — % before — % after round — vesting". Note: this is a LEARNING exercise.
Worked template: FILLED EXAMPLE: An 34%, Binh 30%, Chi 26%, ESOP 10%. Charter capital 2 billion VND, par value 10,000₫ → 200,000 shares. Vesting: 3 founders 4 years, 1-year cliff. After the investor buys 20%: An 27.2% · Binh 24% · Chi 20.8% · ESOP 8% · Investor 20%. (Illustrative figures for LEARNING.)
Quick quiz
1. Which company type is usually best suited for a startup raising from many investors?
→ Joint-stock company (JSC)
Startups that raise usually pick a JSC because shares are easy to slice, transfer, and issue to many investors.
2. An ESOP (employee share pool) typically sets aside about what percentage of shares?
→ About 10%
ESOP typically reserves ~10% of shares to retain and motivate employees as part-owners; there is no legally "mandatory" level.
3. Under Enterprise Law 2020, what are founding shareholders of a JSC restricted from in the first 3 years?
→ Transferring shares to outsiders (needs GMS approval)
Enterprise Law 2020: founders face a 3-year restriction on transferring shares; selling to outsiders needs GMS approval.
4. What is a JSC’s charter capital?
→ Total par value of shares that shareholders registered to buy (a contribution commitment)
Charter capital is the total par value of shares registered to buy (a commitment), not cash always in the account.
5. Why should you RESERVE the ESOP option pool BEFORE raising rather than create it after?
→ Because creating it after all shares are allocated dilutes the founders themselves
Reserving the option pool before raising avoids creating it after all shares are allocated — otherwise founders get diluted.
6. How many shareholders does a JSC need at minimum under Enterprise Law 2020?
→ 3 shareholders
A JSC under Enterprise Law 2020 needs at least 3 shareholders; with fewer than 3 you don’t yet qualify to form one.
Advanced
A deeper framework
At an advanced level, distinguish a pre-money pool from a post-money pool. Investors usually want the pool "topped up" before they wire the money — meaning the dilution of creating/expanding the pool falls entirely on existing holders (founders), not the investor. This is a key negotiation point, often called the "option pool shuffle".
A quick trick: after a round selling x% of the company to the investor (post-money), every existing holder is multiplied by (1 − x). To make the ESOP reach p% counted AFTER the round, you must reserve a pre-round pool larger than p (since it, too, is multiplied by 1 − x). Always convert everything to "post-money" for a fair comparison.
Compare granting shares outright (employees hold shares immediately, with voting rights and early tax risk) with granting options (a right to buy later, tied to vesting, lower risk for employees). Startups usually favour options + vesting to retain people long-term and avoid handing over rights too early.
ESOP dilution math: pre-money pool vs post-money
Before: founders 90% + ESOP 10%
Total 100%
Investor buys 20% (post-money) → existing ×0.8
Founders 72% · ESOP 8% · Investor 20%
Investor demands ESOP = 10% AFTER round (now 8%)
Must top up 2% → taken from founders
Result if pre-money pool set to ~12.5%
Founders ~67.5% · ESOP 10% · Investor 20%
Expanding the pool before the money comes in pushes the ESOP’s dilution onto founders. Always ask "is the pool counted pre- or post-round?" before signing a term sheet.
Common trap: The "option pool shuffle": an investor asks you to expand the ESOP pool substantially BEFORE they wire funds, which effectively lowers your pre-money valuation and makes founders bear all of the pool’s dilution. Don’t just look at the headline valuation — recompute the post-round cap table to see your true %.
Advanced questions
1. Before: founders 90% + ESOP 10%. The investor buys 20% of the company (post-money). After the round, what are the founders’ and ESOP’s %?
→ Founders 72%, ESOP 8% (existing holders ×0.8)
When the investor holds 20% post-money, every existing holder is multiplied by 0.8: 90%×0.8=72% and 10%×0.8=8%.
2. The investor demands the option pool reach 10% BEFORE they wire funds. Who does this hurt and why?
→ It hurts founders, because the dilution of expanding the pool falls entirely on existing holders before the investor comes in
A "pre-money" pool means the pool is created before the investor enters, so all the dilution lands on founders — this is exactly the "option pool shuffle".
3. Why do startups usually grant OPTIONS + vesting rather than outright shares to employees?
→ Because options tied to vesting aid long-term retention and avoid handing over rights/early tax risk to employees
Options + vesting let employees earn their stake gradually over time, reduce the risk of granting voting rights and tax duties too early, and create an incentive to stay.
🎯 Real-life mission
REAL-LIFE MISSION: Simulate incorporating a JSC for your idea. List 3 founding shareholders with their %, pick a sensible charter-capital figure (with a par value → number of shares), and draw a simple "cap table" that RESERVES ~10% for ESOP. Note who vests over how long (e.g., 4 years, 1-year cliff). Then run one round: assume an investor buys 20% of the company and recompute each party’s % AFTER the round. Note: this is a LEARNING exercise — for real, consult a lawyer.