Employee Stock Option Agreement Cost

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What does an employee stock option agreement cost? This is a question employers may have when they plan to offer stock options to their employees. So let’s explore this question and review some general information about employee stock option agreements.

How Much Does an Employee Stock Option Agreement Cost?

An employee stock option agreement, sometimes abbreviated to ESOA, is a legally binding agreement between a company and an employee that grants the employee the option to purchase shares in the company.

The company stock will be set at a specific price in a stock option agreement. The employee has a particular time in which they can purchase the stock. Employees will generally see the most significant benefit if the company’s stock rises above the exercise price.

Employee stock option agreements are an excellent way for employees to invest in the company they work for, but the agreements can be complicated. An employee stock option agreement must include specific provisions about:

  • The price of the stock
  • The time frame in which they can be purchased
  • Whether the stocks can be sold
  • What happens if the employee leaves the company

To ensure that an employee stock agreement is adequately drafted, many companies hire a lawyer to create the contract for them. An experienced lawyer will know what terms and conditions need to be added to an employee stock option agreement to ensure that the company and the employee are protected in the business transaction.

Based on ContractsCounsel’s marketplace data, the average cost of a project involving an employee stock option agreement is $582.14.

What’s Typically Included in an Employee Stock Option Agreement?

Employee stock options are one type of equity compensation that a company can offer its employees. Stock option agreements are usually comprised of four documents:

  • Stock option plan. The stock option plan serves as the governing document for the company’s issuance of stock. It typically contains all the terms and conditions surrounding stock options available to the employee.
  • Individual stock option agreement. When an employee chooses to purchase a stock option from the company, they will execute an individual stock option agreement. This agreement specifies the number of shares purchased, options granted, a vesting schedule, and other employee-specific terms.
  • Exercise agreement. The exercise agreement outlines the terms for which employees can exercise options.
  • Notice of stock option grant. This notice provides the employee with a summary of the terms agreed upon and disclosures. This document isn’t mandatory and is not always included in an employee stock option agreement.

Each employee stock option agreement will differ based on the company and the plans they offer. But, typically, the following essential provisions will be included in almost all employee stock option agreements:

  • Grant Date. The date an employer grants the employee the option to buy stock in the company.
  • Strike Price. In an employee stock option agreement, the stock price will be fixed, and the employee must buy within the exercise period. In addition, the price must be fair market value.
  • Expiration Date. The date that the exercise period ends, and the stock will no longer be available for purchase by employees.
  • Exercise Date. The date an employee purchases their stock.
  • Vesting Period. Very rarely are stock options being immediately exercisable by the employee. Instead, most are subject to a vesting schedule over a period of years.
  • Clawback Provisions. Clawback provisions are conditions that allow the employer to take back the part of the option that has not been exercised as of the date of a triggering event.
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Examples of Employee Stock Option Agreement Projects

Employee Stock Option Agreement Drafting Services

It is common for a company to hire an experienced lawyer to draft their employee stock option agreements. This document is complicated and includes many components that need to be drafted correctly.

If a business hires a lawyer for drafting services, they will incur legal fees for the project. Typically, drafting services begin with a consultation with the lawyer to learn about the company and what stock options they would like to offer their employees.

Next, the attorney will draft a contract with all necessary provisions protecting both the company’s and the employee’s interests. Employee stock option agreement costs will vary based on the length and complexity of the document. The more custom terms included, the longer it will take to draft.

Employee Stock Option Agreement Review Services

Document review services are another service offered by contract lawyers. Sometimes companies have a contract template or an outdated contract to be reviewed, revised, and updated.

A contracts lawyer will go over the document to ensure it meets all applicable laws and is legally binding and enforceable.

Employee Stock Option Agreement Drafting Cost

Hiring an attorney to draft an employee stock option agreement will come with costs because it requires a licensed lawyer's time and legal expertise.

ContractsCounsel’s marketplace data shows the average employee stock option agreement drafting costs to be $525.00 across all states and industries.

Employee Stock Option Agreement Review Cost

Review services by an attorney will also come with fees, but generally, these fees will be lower than drafting fees. The lawyer will charge for their time reading over the agreement, analyzing the terms, and making corrections.

ContractsCounsel’s marketplace data shows the average employee stock option agreement review costs to be $605.00 across all states and industries.

How Do Lawyers Charge for an Employee Stock Option Agreement?

Attorneys charge for their services using a variety of fee structures. The two most common fee structures are hourly rate and flat fee rate.

Hourly Rates for Employee Stock Option Agreements

Lawyers in all legal fields commonly use hourly rate fee agreements. When using an hourly rate structure, the lawyer will bill the client for the number of hours spent on a case or project at a set hourly rate.

This is the safest way for the lawyer to charge clients because they will be compensated for all time spent on a case, even if it takes longer than expected. Clients, however, may not like hourly rates because they won’t know the final bill for legal services until the task is complete.

ContractsCounsel’s marketplace data shows the average hourly rate for a contract lawyer ranges from $200 - $350 per hour.

Flat Fee Rates for Employee Stock Option Agreements

Flat fee billing structures are becoming more popular among lawyers for projects with a definite end, like contract drafting projects. An attorney can estimate the project's time and then quote the client a flat-rate fee.

For a client, flat fee rate structures are preferable because the client knows exactly how much legal services will cost. In addition, there is no surprise bill after the project.

ContractsCounsel’s marketplace data shows the average flat fee rate for employee stock option agreement is $582.14.

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