What are Equity Incentive Plans, Stock Option Grant Notices and Stock Option Agreements?
An equity incentive plan is a type of compensation plan that grants team members (such as employees, consultants and advisors) an ownership stake in your startup. Equity incentive plans typically involve granting stock options, restricted stock, or other forms of equity-based compensation. These plans are often used to motivate and retain team members, as well as to reward them for their performance. The equity incentive plan deals with stock options and is only adopted by the startup (by way of board resolution). It is not signed by team members. To exercise these options, the startup and team member must sign a Stock Option Grant Notice and Stock Option Agreement. The notice and agreement outline the terms and conditions of the stock option grant and details of the number of stock options and how they vest.
Why generate these documents?
Generate these documents to attract, incentivise and retain team members, and empower them as part owners.
What is included in these documents?
The Equity Incentive Plan sets out the pool of shares reserved and the general rules of the plan. The Stock Option Grant Notice and Stock Option Agreement set out the terms and conditions of the stock option grant, including the number of shares to be issued, the exercise price, the expiration date, vesting period, any cliff period and other relevant details. They also outline the team member's obligations in regards to the stock option grant, including the requirement to pay the exercise price when the option is exercised.
Additionally, the notice includes a “vesting schedule”, which outlines how and when the option will become exercisable. For example, the vesting schedule may state that the option will vest over a period of four years, with 25% of the option becoming exercisable each year.