The High-touch Legal Services® Blog…for Startups!

© 2009-2020 Dana H. Shultz, Attorney at Law

What Happens if the Board Doesn’t Approve My Stock Options?

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This post is adapted from a question I answered on OnStartups. Q. I’ve been working for a large private company, and my offer letter said I would receive X number of options as long as the board approved it. It’s been a year and I’ve been stonewalled on the option plan. I’ve sent multiple emails to HR and the controller and the CFO. HR has gotten back to me, but their hands are tied. Can I send a letter and a check to the CFO with $100 to force the issue of exercising some amount of shares and determining the strike price that way?

A. Unfortunately, “subject to board approval” is a common contingency for stock option grants. At this point, I’m not sure there is much you can do about it.

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Rewarding Key Personnel: Restricted Stock or Options?

Sotck price graph, symbolizing restricted stockAs I write this post, I am in the process of helping an early-stage client develop a stock-based compensation plan for a key officer. The principal choice was between a stock option and restricted stock.

A stock option is the right to purchase a specified number of shares at a specified price at some point in the future. The option typically “vests” over a period of years. The longer the individual stays with the company, the greater the portion of the option s/he has the right to exercise. At the end of the vesting period, the individual has the right to purchase all of the shares specified in the option. (more…)

Stock is Great – but Don’t Give It Away Too Quickly!

Most startups and early-stage companies have limited cash. As a result, they often are eager to use stock as a major component of? compensation. They need to make sure, however, that personnel stick around long enough to make the contributions for which they are being compensated.

In some instances, the corporation creates a tax-qualified incentive stock option plan. Employees are granted options to purchase stock, and they do not have to pay any tax on the stock (actually, on profits from their sale of the stock) until they exercise the option (purchase the stock, presumably, at a low price) and, later, sell the stock. (Tax law is less favorable to independent contractors.)

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Should I form an LLC or a corporation?

Drawing of question marks, illustrating the question whether to form an llc or a corporationFairly frequently, an individual will ask whether to should form an LLC (limited liability company) or a corporation for a business. Here are the factors that I typically find are most important.

First, we can pretty much dismiss basic income tax considerations. By default, an LLC is not taxed as a separate entity but a corporation is taxed separately. However, there are ways to override the default tax treatments. An LLC may elect to be taxed as a separate entity by filing IRS Form 8832. Subject to certain limitations, a corporation can avoid separate taxation (i.e., can become an “S corporation”) by filing IRS Form 2553. (Please note, however, that once a company is in business, certain types of transactions can have different consequences for LLCs than for corporations. Accordingly, every company should consult with a tax advisor both up-front and on an ongoing basis.)

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