This is required by the corporate law of Delaware, Washington, and I imagine almost every state corporate law in the country. In this post, I am not talking about LLC equity awards; LLC equity awards are something entirely different from corporate stock options.
You can find good examples of board minutes granting options, or board consents granting options, if you search on Google. They will have them to share with you.
And they would probably prefer you use their forms, since they might be called upon at some future point in time to give a legal opinion on your capitalization, and it will help them do that if they have been involved with your equity issuances.
- Seeking Board Approval for New Option Grants? Use this Template. | capgenius
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Why is it important that you promptly and fastidiously document board approval of stock option grants? In general, it is a good idea to check in with your corporate counsel before granting stock options.
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This does not have to be an expensive process, but the costs of not administering your stock option plan in compliance with all of the technical requirements can become very expensive. For example, if you run over the Rule mathematical limitations, it could actually delay your IPO or result in personal fines.
This actually happened to Google. You can find more information about this in this Practical Law Article. Below is a full-blown stock option grant checklist.
Prior to Granting Stock Options Adopt a stock option plan — First, adopt a plan and draft standard stock option agreements under the plan. Grant all of your stock options under the plan-If you are granting options outside the plan, special considerations will arise, which are not addressed in this checklist. Confirm that you have sufficient shares- Prior to granting stock options; confirm you have the number of shares under the plan to grant the new batch of options.
Rule has mathematical limitations, meaning—there is a limit to the number of securities you can issue under Ruleand you do not want to exceed that limit. Eligible recipients- Confirm each prospective option recipient is eligible under the plan. Generally, only individuals qualify.
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Confirm the residency of recipients — Before every grant of stock options, confirm the residency of the prospective optionees how to work with an options board confirm that you are compliant with the Blue Sky law of each state in which investors are resident. Fair market value- Make sure that the options are being granted at fair market value in compliance with Section A of the Internal Revenue Code.
Board approval- Have the Board approve the option grants pursuant to a Board Consent or resolutions adopted at a meeting. If the vesting schedules for any of the options are different from the standard specified in the standard agreements, make sure the Board consent describes the vesting schedule.
Signed agreements- After each grant of stock options, give each recipient a copy of the stock option plan and their stock option agreements, and have them sign the agreements required under the plan. Capitalization ledger- Update the capitalization ledger once the option is approved.