Below is a link to the Equity Compensation Documents provided by Orrick. These are a good starting point, but we still highly recommend that you speak with your attorney and go over these documents together.
Go see Equity Compensation Docs
Many companies use employee stock options to compensate, retain, and attract employees. The Stock Plan is the general governing document containing the standard terms and conditions of the options to be granted. This document represents the standard provisions for a Silicon Valley start-up company.
Stock Plan Summary
Short document proving an executive summary of the key features of the Company’s Stock Plan.
Stock option agreements specify the individual options grants, vesting schedules, and other employee-specific information. Each grant of options will be documented by a separate option agreement.
Restricted Stock Purchase Agreement
To be used when equity grants under the Stock Plan are made as restricted stock awards rather than options. Will include specifics regarding the repurchase right of the Company and how it will lapse over time. These are not as common as options and you should consult with counsel as to whether restricted stock or options are more appropriate for a particular Stock Plan award.
Board Approval of Stock Plan
Provides for approval of the Stock Plan by the Company’s Board of Directors.
Stockholder Approval of Stock Plan
The Stock Plan will also need the approval of the Company’s Stockholders.
Board Approval of Option Grant
The Company’s Board of Directors must approve each grant of stock options. Often this will be done on a monthly basis depending on the Board’s meeting schedule, and offer letters should always say that the employee’s options are “subject to Board approval.”
83(b) Election Form
Many founders wish to make an 83(b) election in order to preserve possible future taxation benefits. A Section 83(b) election is an election to include in income the value of property which is subject to a substantial risk of forfeiture – such as a Company repurchase right in the purchase agreement, which repurchase right lapses over time as a founder provides services to the Company. Because the stock is subject to a substantial risk of forfeiture, the founder does not have to pay tax on his receipt of the stock until it vests. Often a founder may make a Section 83(b) election to pay tax on the value of the stock today because its value is lower than it is expected to be when the repurchase right lapses –or because the founder paid full value for it at the time of purchase so the Section 83(b) election incurs no additional current tax. The making of the Section 83(b) election also starts the founder’s capital gains holding period. Access additional information about making the election.
Companies issuing stock options must comply with state and federal securities laws. Non-compliance can lead to lawsuits by investors and civil or even criminal prosecution by government agencies. Frequently the stock option grants are structured to fit within exemptions to the laws that generally require registration of the securities. A common exemption for Stock Plans for option issuances in California is found in Section 25101(o) of the Corporations Code.
Forming a Company and tagged with 25102(o) Notice, 83(b) Election Form, Board Approval of Option Grant, Board Approval of Stock Plan, Option Agreement, Restricted Stock Purchase Agreement, Stock Plan, Stock Plan Summary, Stockholder Approval of Stock Plan
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I would recommend that your Founder be very careful about just downloading and/or modifying documents found on the internet. These document can often provide a good start, but without proper guidance they get you into more problems and trouble than they are worth.
I would recommend spending a little money on getting the guidance to design a plan that is built to support your specific goals and growth needs, as well as your exit strategy.
I know this seem self-serving, but I often have to come in and help clean-up problems caused by poor planning in this area. It is much cheaper and more effective to do things right from the start.
I should also mention that the NCEO (http://www.nceo.org) has some excellent resources for companies looking to roll-out some type of stock ownership Becoming a member is very cheap (tell them I sent you and you will likely get a discount). Their newest book is Equity Compensation for LLCs. It was written by people I have knwon for year. They are some of the best in the business at this topic.
The best thing would be to hire a securities attorney.
I would be happy to add any FounderSapce member to my LinkedIn network.
my email is email@example.comMy LinkedIn profile is here: http://www.linkedin.com/in/danwalter
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