Morena – there are a bunch of questions there, let me see if I can answer them
– ESOP schemes normally (employee share ownership schemes) start after the company has been founded and are a way of sharing some of the future upside with key employees and sometimes all employees
– they have become much easier to implement these days
– the typical version is that a company that has 100 shares, decides to allocate 5% 10% or 15% into a ESOP pool for employees, so that means (basically) that the share capital of the company increases by that amount eg. 105, 110 or 115 (there is a wierd math formula which means it is not quite that number) and you authorise this through a shareholders resolution approving the increase in share capital and also typically the ‘rule’s of the ESOP scheme ie how it will work, and who is authorised to issue Options to employees and advisors
– note, at this point, no options have been issued, more the rules for the scheme are established
– then the actual terms of any issue will include things like the exercise price, the length of the term of the option, the vesting term ie how do options get allocated over what period of time, and things like good leaver, bad leaver
– for a worked example say we are issuing 5 options to a person in the team, the options may have a 10 year term, the exercise price maybe $1 per share and the 5 options vest over 5 years ie 1 option per year – the person does not have to do anything now, it is just a right to buy a share in the future, but lets say we get to year 5 and all options are vested and lets say then the share price is $100 per share (happy days) – if the employee exercises the options (normally because the company has been sold) then what happens is they would pay $1 per share for the 5 options, and they would have to pay tax on the increase in market value of the share from $1 to $100 ie tax on the $99 – now this is ok, if the company has been sold as it is just a net-net and it is fair to pay tax because they were granted these as part of employment
– there are other ways to structure but this way is the simplest and you know, you really can’t avoid things like death and taxes!
– for founders, they don’t have the tax issue, because they did not get the shares in the course of employment (yes I know it is slightly wierd)

Re your questions:
– dilution is part of live, like death and taxes, when an ESOP is issued, everyone gets diluted, including the founder – that is my personal view, I don’t like friction of saying ‘no the founder should not be diluted’
– loan schemes are used and can work, they require more legal upfront costs, the key question will be ‘is there a benefit that the employee has received in the course of their employment’ which is taxable and who pays that – if the Company wants to pay the tax impact ‘early’ rather than later, then I think this is good, but someone has to pay the tax man!
– generally keeping it all in one set of shares is easier, rather than separate compartments

Hope this helps – it feels to me like I rambled. I need coffee now. Hammy