Dividend Equivalent Shares
Overview of this form
The Dividend Equivalent Shares form is a legal document used in corporate matters to credit key employees with dividend equivalents during an option exercise period. Unlike standard stock options, this form ensures that employees receive additional stock shares based on dividend declarations, thus aligning employee interests with company performance. It's important for companies seeking to enhance their compensation structure without immediate cash outlays.
Key parts of this document
- Definition of key employee eligibility for dividend equivalents.
- Calculation method for dividend equivalents based on stock value and fair market value.
- Mechanism for crediting additional shares to employees on each record date for declared dividends.
- Provision stating that credited shares will earn further dividend equivalents.
- Conditions under which shares are payable to employees upon exercising options.
Common use cases
This form is utilized by corporations when engaging employees through stock options, particularly in scenarios where the company wants to reward key employees with additional stock based on dividends. It is appropriate when structuring compensation packages that include dividend equivalents to motivate and retain talent, especially in competitive industries.
Who needs this form
This form is suitable for:
- Corporations looking to implement a dividend equivalent plan for their key employees.
- Human resources and finance departments responsible for employee compensation strategies.
- Legal professionals drafting or reviewing corporate compensation agreements.
- Key employees who are stakeholders in a companyâs stock option plans.
Instructions for completing this form
- Identify the key employee and their eligibility for dividend equivalents.
- Specify the number of shares subject to the options and the calculation for fair market value.
- Detail the record dates for declared dividends that will affect the crediting of additional shares.
- Clarify the conditions under which additional shares will be paid upon exercising options.
- Obtain necessary approvals from corporate governance as required by company policy.
Is notarization required?
This form does not typically require notarization unless specified by local law. Ensure compliance with your specific state regulations regarding corporate forms and stock options.
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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.
Avoid these common issues
- Failing to correctly define eligibility criteria for key employees.
- Neglecting to update the fair market value regularly, affecting share calculations.
- Omitting necessary company approvals prior to issuing dividend equivalents.
- Not keeping accurate records of dividends declared and credited shares.
Benefits of using this form online
- Convenient access to legally-sound templates that can be tailored as needed.
- Ability to edit and customize forms quickly for specific corporate needs.
- Secure storage and retrieval of documents to comply with legal requirements.
Legal use & context
- Dividend equivalents are recognized and enforceable under corporate law but may require adherence to state-specific regulations.
- This form is legally sound if properly completed and maintained according to company policy.
- It's important to consult with a legal professional to ensure that the implementation meets all statutory requirements.
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FAQ
You typically receive the shares after the vesting date. Only then do you have voting and dividend rights. Companies can and sometimes do pay dividend equivlent payouts for unvested RSUs.Unlike stock options, RSUs always have some value to you, even when the stock price drops below the price on the grant date.
Shares outstanding include shares of unvested restricted stock.Shares of unvested restricted stock are excluded from our calculation of basic weighted average shares outstanding, but their dilutive impact is added back in the calculation of diluted weighted average shares outstanding.
RSUs are taxed as income to you when they vest. If you sell your shares immediately, there is no capital gain tax, and the only tax you owe is on the income. However, if the shares are held beyond the vesting date, any gain (or loss) is taxed as a capital gain (or loss).
With restricted stock and restricted stock units, upon job termination you almost always forfeit whatever stock has not vested. Exceptions can occur, depending on the vesting terms of your employment agreement or stock plan, such as special provisions for disability, retirement, or an acquisition.
IPO Lock-Up Period and Long Term Capital Gains In most scenarios when your RSUs vest you can sell them immediately and there is almost no tax impact.However, if the stock reverts to the original IPO/Vesting date price, don't hesitate to sell since there will be no additional tax benefit.
Dividend equivalents paid on restricted stock units are treated as compensation income and will be subject to federal income tax when paid to the employee.When dividend equivalents are paid on a current basis, they are subject to federal income tax at the time of the payment.
Dividend Equivalents means a right, granted to a Participant under the Plan, to receive cash, shares, other Awards or other property equal in value to dividends paid with respect to shares of Stock.
A dividend equivalent payment is any gross amount that references the payment of a dividend on a U.S. equity and that is used to compute any net amount transferred to or from the long party, even if the long party make a net payment to the short party or the net payment is zero.
RSUs do not offer voting rights until actual shares are issued at vesting. No Dividends. RSUs cannot pay dividends, because no actual shares are used (employers can pay cash dividend equivalents if they choose). No Section 83(b) Election.
