R E S O U R C E S
Legal Paperwork 101:
The Stock Option Plan
Options are a way
to lock in a particular per-share price for stock without having to
actually buy the stock, and they have a specific lifetime. An example
of an option might be a two-year-long opportunity to buy 500 shares
of Cisco at $2.50/share. If the option isn't "exercised" it expires.
Employee options, as you might then deduce, are stock options offered
to employees either when they join the company or as additional incentives
as they help the company succeed or achieve significant milestones. Many
companies also use stock options to compensate for their inability to pay
100% market rate for executives. (Be aware, however, that there are
significant tax consequences with stock as compensation)
There are quite a few sections to a typical Stock Option Plan, but they boil
down to the following critical elements:
- Stock subject to the plan
- Administration of the plan
- Eligibility
- Exercise Details (price, procedures and rights of shareholders)
- Adjustments upon change in corporate capitalization or control
- Effective date and term of plan
Sample Stock Option Plan
Most importantly, make sure that you clearly state the conditions
of the option grant and the exercise conditions. A classic tripwire
to explicitly state is that any tax liability upon exercise of the
option is assumed by the employee.
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