What is Equity Incentive Plan Drafting?
An equity incentive plan is a written agreement that outlines how a company can grant equity to employees or service providers. It needs to specify what parties can receive the specified equity and how it will be managed.
An equity incentive plan can motivate employees and help companies retain key talent as their employees receive shares in the company’s future growth and success.
If you need to draft an equity incentive plan, read the rest of this article to learn what key terms are usually included in this document, how to draft it, and why you’ll benefit from hiring a qualified lawyer to draft the plan for you.
What Key Terms are in an Equity Incentive Plan?
Here’s a rundown of some common equity incentive plan terms:
- Parties. Name the parties who will administer the equity incentive plan, such as the committee.
- Objectives. This outlines what the company wishes to achieve with the plan, such as retaining employees or attracting talent.
- Equity. Explain the type of equity awards that will be granted. It’s common for these plans to have multiple equity types.
- Stock options. These options let employees buy company stock at a fixed price during a future period.
- Vesting schedules. This stipulates over what period the equity will be earned.
- Legal compliance. There are various legal and regulatory considerations for the plans to be effective while not harming the company.
- Restricted Stock Units (RSUs). This is a promise to grant shares once vesting conditions are met.
- Performance shares. These shares are awarded if the company hits certain performance targets.
What are Additional Tips to Follow When Drafting an Equity Incentive Plan?
Some important information should be included in the equity incentive plan so that it’s clear and detailed to prevent disputes.
Detail Eligibility
The agreement must clearly state what parties, such as employees, are eligible for the awards. This will ensure that the awards are fairly allocated. The employees might be eligible based on various criteria which should also be mentioned, such as tenure or performance.
Select the Right Plan
It’s important to think about the best plan to match your company goals, such as stock options. It can be beneficial to consider your company size and stage when deciding on the equity to provide. Once you’ve selected the most appropriate plan, you can determine the terms of your equity plan.
Explain How Much Equity is Offered
Be transparent and detailed about the equity being offered, such as what vesting schedules apply and how much equity is provided. If there are any unique circumstances involved, such as the employee leaving the company before or after equity has vested, these should be addressed.
Specify Vesting Schedules
Consider the best vesting schedules that will encourage employee retention. This can be a time-based or performance-based schedule, for instance. By providing clarity in this section, the receiving party will understand exactly how they can achieve the rewards, with no risks of misunderstandings.
Explain Corporate Event Provisions
It’s important to consider how the awards will be treated in different situations, such as if there are company mergers, changes of control, or acquisitions. This will prevent future challenges or disputes.
Get Approvals and Conduct Admin
You might need the plan approved by the company’s board and shareholders. Once it’s approved, the company must carry out ongoing admin tasks, such as issuing awards and maintaining records. It might also need to register shares or complete required filings.
By clearly specifying these obligations and mentioning the parties who will administer the plan, you can promote transparency and compliance.
How Does a Lawyer Help You with Equity Incentive Plan Drafting?
Since an equity incentive plan can be detailed and technical, it can benefit you to hire a lawyer to draft it for you. This will give you peace of mind that the plan is clear, detailed, and fair to both parties to reduce your risk of future disputes.
A lawyer can assist you through the entire contract-drafting process, such as by:
- Designing a customized equity incentive plan that’s aligned with the company’s growth and ownership structure.
- Explaining the criteria for eligibility so there’s no confusion. This should include under what conditions the parties will receive equity awards.
- Drafting a clear plan that includes accurate vesting schedules, performance milestones, and more.
- Ensuring compliance with all relevant corporate, securities, and employment laws. This minimizes your regulatory risks.
- Establishing governance and admin procedures. This includes how to change the plan and gaining board or committee authority.
- Guiding you through ongoing administration obligations, such as regulatory filings.
- Reviewing an equity incentive plan that you’ve already drafted to check all its terms.
Where to Find a Lawyer for Equity Incentive Plan Drafting
If you need to hire a lawyer to draft your equity incentive plan, you don’t have to struggle to find one who matches your requirements. Online legal platforms make the process of finding and hiring a lawyer a stress-free process.
ContractsCounsel is one of the largest online legal marketplaces that gives you access to a curated network of vetted lawyers. Since all the lawyers on the platform have years of experience in contract drafting and review, they’re well positioned to help you achieve a legally-sound and clear equity incentive plan.
To request that a lawyer on the platform drafts your equity incentive plan, here are the easy steps to follow online:
- Go to the ContractsCounsel marketplace.
- Post your project for free. Include a few details to help you find the most suitable lawyer, such as the purpose of your equity incentive plan.
- Receive multiple bids from lawyers directly on the platform who have the experience to help you.
- Review the lawyers’ profiles. Before choosing a lawyer to work with, you should take some time to review information about the lawyers, such as their location, client ratings for previous projects, expertise, years of experience, and credentials.
- Connect with a lawyer you think is best suited to your requirements and hire them to draft your equity incentive plan for a flat fee.
