Stock Option Plan
About this form
The Stock Option Plan is a legal document that outlines the terms and conditions under which a company grants stock options to its eligible employees. This plan enables companies to attract and retain talented employees by providing them with the opportunity to acquire shares in the company, thus increasing their investment and engagement. Unlike basic employee agreements, the Stock Option Plan contains detailed provisions regarding the type of options granted, eligibility criteria, exercise prices, and adjustments due to corporate actions.
What’s included in this form
- Purpose: Defines the plan's aim to motivate employees by offering equity interests.
- Stock Subject to Plan: Details the maximum number of shares available for options.
- Eligible Employees: Specifies who can receive options under the plan.
- Minimum Exercise Price: Stipulates that the exercise price must not be less than the stock's fair market value at the time of grant.
- Adjustments: Explains how the number of shares and options may change due to corporate events.
- Payment Options: Outlines how employees can pay for stock upon exercising options.
Situations where this form applies
This Stock Option Plan should be used when a company wishes to incentivize employees through equity. It is particularly useful for startups and growing businesses looking to enhance their compensation packages, align employee interests with company performance, and reward loyal service. Additionally, this form is necessary during corporate restructuring, where the company plans to offer stock options to new or existing employees as part of an incentive strategy.
Intended users of this form
- Businesses looking to implement a stock option program for employees.
- Human resource professionals and company executives responsible for employee compensation.
- Legal teams advising on compliance with securities laws and corporate regulations.
- Startups seeking to attract talent in a competitive market by offering equity options.
How to complete this form
- Identify the company name and the specific provisions of the stock option plan.
- Specify the maximum number of shares and the type of stock being offered.
- Define the eligibility criteria for employees who may receive stock options.
- Set the minimum exercise price based on fair market value standards.
- Outline administrative responsibilities and procedures for overseeing the plan.
Notarization requirements for this form
Notarization is not commonly needed for this form. However, certain documents or local rules may make it necessary. Our notarization service, powered by Notarize, allows you to finalize it securely online anytime, day or night.
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Make edits, fill in missing information, and update formatting in US Legal Forms—just like you would in MS Word.
Download a copy, print it, send it by email, or mail it via USPS—whatever works best for your next step.
Sign and collect signatures with our SignNow integration. Send to multiple recipients, set reminders, and more. Go Premium to unlock E-Sign.
If this form requires notarization, complete it online through a secure video call—no need to meet a notary in person or wait for an appointment.
We protect your documents and personal data by following strict security and privacy standards.
Mistakes to watch out for
- Failing to update the plan in response to changes in securities regulations.
- Not clearly defining eligible employees, leading to confusion.
- Neglecting to specify the exercise price accurately, which could cause legal challenges.
- Overlooking necessary adjustments during corporate reorganizations.
Benefits of using this form online
- Convenient access to the Stock Option Plan template, enabling quick drafting.
- Editability to customize the plan according to specific business needs.
- Reliable legal framework drafted by licensed attorneys ensuring compliance with state laws.
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FAQ
There can be huge financial benefits that come from employee stock options. Higher-level employees can often convert their options into six-figure and seven-figure profits.In some companies, key employees can receive options over many years, and even throughout their careers.
Before you understand the taxation of ESOPs and RSUs, here are some key terms you must know: ESOP or Employee Stock Option Plan allows an employee to own equity shares of the employer company over a certain period of time. The terms are agreed upon between the employer and employee.
Develop your philosophy. Your stock option plan is an expression of your company philosophy. Paper it. Adopt your stock plan and option agreements and get board and stockholder approval. Make it official. Work with your lawyers to obtain all relevant state permits for your option plan.
Under fixed intrinsic value accounting, the "spread" of a stock option (i.e., the amount by which the fair market value of the stock at the time of grant exceeds the exercise price) must be expensed over the vesting period of the stock option. If the spread is zero, no expense needs to be recognized.
The benefit of a stock option is the ability to buy shares in the future at a fixed price, even if the market value is higher than that amount when you make your purchase.
In an ESOP, a company sets up a trust fund, into which it contributes new shares of its own stock or cash to buy existing shares. Alternatively, the ESOP can borrow money to buy new or existing shares, with the company making cash contributions to the plan to enable it to repay the loan.
Develop your philosophy. Your stock option plan is an expression of your company philosophy. Paper it. Adopt your stock plan and option agreements and get board and stockholder approval. Make it official. Work with your lawyers to obtain all relevant state permits for your option plan.
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").
With an employee stock option plan, you are offered the right to buy a specific number of shares of company stock, at a specified price called the grant price (also called the exercise price or strike price), within a specified number of years.
