What is an Option Agreement?

Share option agreement. Share Option Agreement

Vesting Schedule. Termination Period. You may not transfer this Option. Grant of Option.

Because your purchase price stays the same, if the value of the stock goes up, you could make money on the difference. Restricted stock is different than stock options and is treated differently for tax purposes.

  • Notwithstanding any provision herein to the contrary, any portion of the Option granted hereunder that have not vested and become exercisable prior to the Termination Date will expire on the Termination Date and may not be exercised under any circumstance.
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  • Share Option Agreement
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Stock option grants are how your company awards stock options. Your stock option agreement should also specify its expiration date. However, your grant can also expire after you leave the company—you may only have share option agreement short window of time to exercise your options buy the shares after you leave.

Remember: If you hope to purchase and sell your stock someday, accepting your stock option agreement is the first step you have to take.

Need to draft an Option Agreement? It takes less than 5 minutes with our document builder.

Instead, simply log into your portfolio to accept, view, and print the actual agreement. Vesting Vesting means you have to earn your employee stock options over time.

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Meetly has a traditional vesting schedule. In this example, you have a one year cliff, which is standard.

In order to operate effectively as incentive compensation, however, the stock option agreement must be executed well, to protect both the needs of the employer and the employee.

This means after one year of working at Meetly, you can buy a quarter of your options, or 25 shares. If your option grant includes a cliff, it prevents that. The other piece of your vesting schedule to keep in mind is the total length of the vesting schedule.

Stock Option Agreement for Equity Incentive Plan

This outlines how often, and for how long, your shares will vest. In this example, after you reach your cliff, your remaining shares will continue to vest for three years—two shares each month. Termination If you leave the company, your shares will stop vesting immediately and you can only buy shares that have vested as of that date.

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And you only maintain this right for a set window of time, called a post-termination exercise PTE period. Historically, many companies made this period three months.

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However, some companies offer more generous PTE periods now. At Carta, for example, you have as long as you worked at the company to buy your shares.

Option Agreement

We went over stock option agreements: an important document you want to make sure you receive and sign. We covered vesting schedules and how companies use cliffs to incentivize employees to stay longer.

Finally, we discussed what happens to share option agreement stock options if you leave the company. These are the four things that every startup employee should think about when they receive their offer letter and join a new company.

Stock Option Agreement

In our next section, we cover how to think about what your options are actually worth. This communication is not to be construed as legal, financial or tax advice and is for informational purposes only.

  1. Equity Stock options explained for startup employees | Carta
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This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein.

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Jenna Lee Jenna is on the content team at Carta. Despite working in Fintech her entire career, she has never had a La Croix.

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