Sage-Tips

Do stock options require shareholder approval?

A stock option should be granted under a written stock plan that is approved by shareholders within 12 months of the date it is adopted by the company’s board of directors. Due to tax rules, stock options should be granted for common stock and not preferred stock.

What does stock options mean for employees?

An employee stock option is the right given to you by your employer to buy (“exercise”) a certain number of shares of company stock at a pre-set price (the “grant,” “strike” or “exercise” price) over a certain period of time (the “exercise period”).

Can incentive stock options be granted to board members?

May only be issued to employees. Investors, honorary board members, employees; anyone may be given NSOs. The board of directors and shareholders must have previously approved a stock option plan.

What are some problems with granting stock options to employees?

Dilution can be very costly to shareholder over the long run. Stock options are difficult to value. Stock options can result in high levels of compensation of executives for mediocre business results. An individual employee must rely on the collective output their co-workers and management in order to receive a bonus.

How do stock options work for employees UK?

Employees can generally exercise their share options – ie buy the shares – after a specified period, known as the vesting period. When an employee exercises their share options, it’s at the price fixed at the date of grant, ie when the options were given to the employee, regardless of the prevailing market price.

What are stock options for board members?

A stock option or other equity incentive plan can allow a start-up company to offer prospective independent directors and advisors a financial upside beyond what the company’s cash account can currently afford.

Can stock options be granted to an entity?

Stock options are only for people While it’s usually fine to grant stock options to an individual consultant under the option plan, grants generally can’t be made to an entity. You may have to grant them outside of your stock option plan, which requires a separate exemption for registration requirements.

Why are employers willing to give stock options to employees?

Stock options essentially pay for themselves by motivating employees to increase the value of the business and thus generate their own financial reward. For example, an employee might not work hard to develop a business when there is no financial benefit to putting in more effort than it takes to simply keep his job.

Why do companies give stock options to employees?

Stock options are a benefit often associated with startup companies, which may issue them in order to reward early employees when and if the company goes public. They are awarded by some fast-growing companies as an incentive for employees to work towards growing the value of the company’s shares.

Do you need board approval for stock option grants?

If you are in the process of awarding stock options to employees or service providers, do not forget that you need (among other things) board approval of all stock option grants. This is required by the corporate law of Delaware, Washington, and I imagine almost every state corporate law in the country.

When do stock options have to be approved by shareholders?

Document issues A stock option should be granted under a written stock plan that is approved by shareholders within 12 months of the date it is adopted by the company’s board of directors. There are 2 types of stock options: incentive stock options (ISOs) and non-statutory stock options (NSOs).

Can an Officer grant stock options to an employee?

It is not typical to delegate authority to grant stock options to officers (or management-level employees) and it is usually is not advisable to do so unless strong corporate governance processes are implemented. Option holders should be required to sign their option agreements and promptly return a copy to the company.

What is the board resolution approving a stock option plan?

Form: Board Resolution Approving a Stock Option Plan Description: This is a sample resolution to be adopted by the Board of Directors, approving a Stock Option Plan. The form can be used with the Action by Written Unanimous Consent of the Board of Directors or the form of Minutes of the Meeting of the Board of Directors.