Finland: How To Commit The Employees Of A Startup

Last Updated: 13 June 2017
Article by Nordic Law

The startup world can be a ruthless place for an early-stage startup starting its journey to world domination. Everything is new and the legal do's and don'ts can be found around each corner. One key element that often defines the future of an early-stage startup is evolving around the team – I bet you didn't expect that one, but the significance of the actual team cannot be overly emphasized. We at Nordic Law have met many startups, which have had a brilliant business idea – on paper – but when the actual team has failed to deliver, the business idea has not reached its full potential.

The follow-up question is, how do you then make sure that you have got a team filled with A-class professionals? If we knew the answer, believe me, we would tell all our clients of the secret formula. Although the building of the team can be challenging, the committing of the team to the startup is fortunately much simpler. A startup, as an employer, can develop various employee benefit plans and the actual legal limits are few.

As startups, especially in the early-stages, fight constant battles with the cashflow, startups need to develop alternative ways to commit employees instead of the traditional salary. The fact is that many startups rarely have got the liquid assets to pay – normal – salary to key employees. Also, if the startup has already got investors on board, it is likely that the investors do not appreciate that their invested money is spent on employee salaries without the long-term commitment of the employees to the startup. As the oldie, but goldie, saying goes, the core team should have some "skin in the game". Well, how can startups solve this problem you may ask? The common solution is either a share purchase, where the employees from the get-go purchase a part of the company or then the employees are included in an employee stock option plan (in the oh so dreaded legal lingo, an ESOP).

Below we will in a short and sweet manner present the key elements regarding both alternatives, so that the next time your startup is planning similar actions, you will know what to do.

Share Purchase

With a share purchase the employees are offered an opportunity to purchase shares of the startup. The normal way to carry out this alternative is a private offering to the employees in question. Simplified, the startup issues new shares to the employees, who then immediately become shareholders of the startup.
This alternative has quite a lot of positive upside, especially for the employees, who immediately become shareholders of the startup. The arrangement is easy and flexible to set up, which means, for example, less legal costs and paper burecraucy. The startup merely issues new shares and the employees subscribe to the shares – easy, transparent and cost-effective.

What comes to the purchase price, the recommendable solution is that the employees pay in accordance with the fair market value of the startup. If the purchase price is below the fair market value, the purchase price is under-priced, which can result in tax consequences for the employees. The employees can be given a 10% discount regarding the purchase price in connection with a private offering provided that the shares are offered to the majority of the employees. As you want to commit your team early on when the fair market value is low (most likely the company's worth is the share capital), the employees do not even have a need to commit large amounts of money to purchase shares of the company.

Also, as the startup is issuing new shares to the employees, the employees do not need to pay capital transfer tax, which normally is payable when shares are transferred.

An Employee Stock Option Plan – the ESOP

With this alternative we come to the exciting world of options and option programs. Simply stated, with options are meant the right to subscribe to shares if certain requirements are fulfilled, which means that the ownership of shares is possibly realized sometime in the future. Most likely, if you have been a part of the startup scene for a while, it is almost certain that you have stumbled upon options as well.

One of the main reasons behind options is that employees do not need to commit capital in the startup right from the get-go. In the above discussed share purchase alternative, the employees must pay a subscription price equaling the fair market value to avoid tax consequences. If the company at that point has steady business operations, the fair market value can be quite significant, which means that employees would need to commit more capital to the company. As for options, if combined with a long subscription period, the possible subscription can be pushed back all the way to the possible exit. In that situation, the employee in possession of options can be certain that the valuation of the shares exceed the subscription price. Finnish legislation does not restrict the length of the subscription period, which means that in theory the employee in possession of options can wait even until the possible exit. That way the employee can decide if the subscription of shares is lucrative.

There also certain additional elements that need to be taken into consideration regarding options. The offering of options requires a decision of the General Meeting of the startup. As a starting point, the registered option program contains only the minimum terms and the detailed terms are decided in non-public agreements.

Option programs normally also include vesting terms, which means that options entitle to share subscriptions only if the options have been vested. The average vesting time ranges between 2-5 years (incl. a cliff) meaning that a certain amount of the options entitle to share subscriptions after the cliff. Then the remaining part of the options are vested in regular intervals.

Options and Finnish taxation

Lastly, you cannot talk about options without a few words regarding the tax perspective. The custom is that options meant to commit employees are given free of charge. That means that the employee has a payment obligation only if the options are converted into shares. Currently Finnish legislation does not set requirements of a minimum subscription price. Normally the subscription price is lower than the fair market value of the options, especially regarding option programs for startups. The difference between the fair market value and the subscription price is taxed as normal income.

From the startup scene's perspective, the current taxation is not favorable as it does not go hand in hand with the fact that startups rarely achieve any real financial result before an actual exit (i.e. liquidation event). That means for employees in possession of options that if and when they subscribe to shares, the tax burden can become heavy. So, in the interest of the employees, the subscription of shares should not occur before an exit as that is also the moment when the employees' commitment is rewarded. Along with the exit, the employees also receive the necessary capital for the tax consequences. What is then the recommendable solution to the current issues with Finnish option taxation? If a startup offers option programs to the employees, the subscription period should either be very long (up to 10 years) or with an infinite maturity. That means for employees that they can postpone the subscription of shares all the way to the possible exit. The taxation will occur at the moment of subscription, but in that situation, the employees should also have the necessary capital to pay the taxes.

The Shareholders' Agreement

Finally, when you have committed your core team to your startup, you need to make sure that all shareholders follow the basic rules. That is why all employees becoming shareholders must before subscribing to shares join the shareholders' agreement of the startup by signing a separate adherence agreement. That way you can make sure that the ownership of your startup is secure and predictable.

So, what are you waiting for? Go and build and you dream team and start your journey towards world domination!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.