Start with the entity. A **mainland LLC cannot readily run an option scheme** — every share transfer needs notarisation and authority approval, and there is no register mechanism that makes small grants practical. Companies that want real employee equity either hold it at a DIFC, ADGM or offshore entity, or use a **phantom plan** that pays cash instead.
Employee Equity
Option schemes, phantom plans and what actually works in the UAE
Start with the entity. A mainland LLC cannot readily run an option scheme — every share transfer needs notarisation and authority approval, and there is no register mechanism that makes small grants practical. Companies that want real employee equity either hold it at a DIFC, ADGM or offshore entity, or use a phantom plan that pays cash instead.
| Item | Detail |
|---|---|
| Company | [COMPANY NAME] |
| Entity issuing the equity | [Mainland LLC / Free zone / DIFC / ADGM / Offshore holdco] |
| Instrument | [Share options / Share awards / Phantom or cash-settled plan] |
| Pool size | [PERCENTAGE] fully diluted — [NUMBER] shares |
| Granted to date | [NUMBER] Available: [NUMBER] |
| Vesting | [4] years, [12]-month cliff, then monthly |
| Exercise price | [Fair market value at grant / nominal] |
| Exercise window after leaving | [PERIOD] |
| Approved by | [NAME], [DESIGNATION], on [DATE] |
| Tax position confirmed | [DATE] — see Section 5 |
1. Choosing the Instrument
| Instrument | How it works | Suits | Problems |
|---|---|---|---|
| Share options | Right to buy shares at a set price after vesting | DIFC, ADGM, free zone or offshore entities | Impractical over a mainland LLC — notarised transfers on every exercise |
| Share awards | Shares issued on vesting, no exercise price | Same entities | Same mainland problem; employee holds shares from vesting |
| Phantom / cash-settled | A contractual right to a cash payment tracking share value | Mainland LLCs; any entity avoiding share mechanics | No real ownership; funded from cash at the exit |
| Growth or exit bonus | A defined share of exit proceeds, paid as a bonus | Small teams; simple structures | Taxable as employment income where tax applies; no upside before exit |
| Options at a holdco | Options over the parent holding the UAE operating entity | The usual answer for funded companies | Requires the holdco to exist first |
1.1The mainland problem is mechanical, not legal. Nothing prohibits a mainland LLC granting options — but each exercise means a notarised share transfer, DED approval and a licence amendment, with the employee attending a notary. For twenty employees exercising small holdings, it does not work.
1.2Phantom plans are the practical mainland answer. The employee gets the economic benefit without any share transfer, and the company avoids the notarisation problem entirely.
2. Scheme Terms
2.1The Board [or a Committee] administers the scheme and may grant options over the pool.
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A mainland LLC cannot practically run an option scheme — every exercise means a notarised transfer, authority approval and a licence amendment, with the employee attending a notary. Nothing prohibits it; it simply does not work at scale. Establish the issuing entity before the first conversation with an employee.
A cash-settled plan gives the economic benefit without any share transfer, avoids the notarisation problem entirely, and can be operated by any entity. For a mainland company that wants to share upside with its team, this is usually the right instrument.
It is a contractual promise to pay cash, not ownership — no voting, no dividends, no shareholder rights, and payment depends on the company having the cash. Employees told they have "equity" who later discover otherwise feel misled, and that resentment outlasts the payment.
Companies raising external investment typically place a DIFC, ADGM or offshore holdco above the UAE operating entity and grant options there. It solves the mechanics for options, vesting and transfers in one step — but the holdco has to exist first.
There is no UAE personal income tax charge on grant, vesting or exercise. But a participant tax resident elsewhere, or who moves, may be taxed in that country on a UAE-granted award. Say so in the grant letter — silence implies there is no issue anywhere, which is not true for internationally mobile staff.
A departing employee whose residence visa is cancelled may leave the UAE within a short grace period, and a ninety-day exercise window is of little use to someone who has gone and cannot fund the exercise price. Explain the position at notice, not at cancellation.
A leaver must find the exercise price in cash with no market for the shares. Where the scheme is intended to reward rather than to lapse, consider a longer window or a cashless exercise mechanism. Otherwise most departing employees simply lose the value.
Who holds what, granted when, at what price, vested to date, exercised, lapsed. Schemes run from grant letters in a folder cannot answer a diligence question and cannot compute a leaver position reliably. Reconcile it to the cap table quarterly.
Equity promised in a hiring conversation or an offer letter and never granted is a real commitment that surfaces in diligence and must be honoured. Identify them now and either document or resolve them.
Suspending vesting during annual, sick, maternity or parental leave disadvantages employees exercising statutory rights. Keep it running — the saving is trivial and the signal is poor.
Forfeiture of vested options on dismissal for cause is severe, and a broad definition invites abuse and disputes. Confine it to dishonesty, fraud and serious misconduct, and remember the mainland disciplinary framework limits what an employer may do in any event.
For a phantom plan the payment depends entirely on the valuation, and a basis agreed after the trigger event is a negotiation the employee will lose. State the methodology, who determines it, and what happens if the parties disagree.
A cash-settled plan creates a real payment obligation at exactly the moment cash is under pressure. Model it into the exit or liquidity planning rather than discovering the size of it at completion.
Exercising discretion generously for one departing employee and not another, in similar circumstances, is noticed. Where discretion is used, record the reason — it forces the comparison to be made deliberately.
Reflects UAE law and practice current as of {{DATE OF USE}}. Company law, notarisation requirements, corporate tax treatment of equity charges and free zone rules all change, and participants’ home-country tax positions vary — take UAE legal and tax advice before adopting a scheme, and tell participants to take their own advice.
This is a ready-to-use template provided for convenience. Laws and requirements change, and every situation is different — please have it reviewed by a qualified professional (a lawyer, corporate secretary, or accountant as relevant) before you rely on it.