Attract, retain, and motivate key team members with thoughtfully structured stock option plans and equity grants that help manage dilution and address applicable tax and securities-law requirements.
In today’s competitive startup and tech landscape, equity compensation is often an important part of recruiting and retention. But issuing equity to employees, advisors, and directors is not as simple as handing out shares. It usually requires a formal equity incentive plan and attention to corporate, tax, and securities-law requirements, including issues that may arise under Section 409A and Rule 701.
At Ishimbayev Law Firm, we help founders, boards, and HR teams design and implement equity compensation frameworks that fit the company’s stage and goals. Our role is to help structure the option pool, address company concerns around departing service providers, and prepare grant documents that are clear and workable in practice.
Architecting the overarching Equity Incentive Plan, including determining the size of the option pool, defining plan administration rules, and outlining mechanics for corporate transactions (change-of-control).
Drafting the specific Notice of Stock Option Grant and Option Agreements for both Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NSOs), incorporating standard 4-year vesting schedules and 1-year cliffs.
Advising on Section 409A requirements, coordinating with third-party valuation firms, and helping align option grants with current fair market value analysis.
Ensuring your equity grants comply with federal Rule 701 and managing applicable state-level “Blue Sky” filings for employee benefit plans.
We review your cap table and fundraising plans to help determine an option pool size and grant structure that fit the company’s stage and dilution goals.
We draft the full suite of plan documents and prepare the mandatory Board of Directors and Stockholder resolutions required to legally adopt the plan.
We assist with rollout and administration questions, including grant documentation, board approvals, and 83(b) election guidance for early exercises or restricted stock awards.
Investors and future counsel will often review equity plans closely in diligence. We draft plans using familiar market structures, with attention to acceleration terms, administrative mechanics, and issues that can become sticking points later.
Granting options below fair market value can create significant tax issues under Section 409A. We help clients think through the valuation process and related grant mechanics carefully.
We help structure grant agreements with appropriate post-termination exercise provisions, transfer restrictions, and other terms that fit the company’s goals and cap table.
Equity compensation can be confusing for new hires. We provide clean, professional, and easily understandable grant documents that make your employees feel valued while clearly defining the legal boundaries of their equity.
Incentive Stock Options (ISOs) provide highly favorable tax treatment for the employee (potentially qualifying for long-term capital gains), but they can only be granted to W-2 employees and come with strict holding period requirements. Non-Qualified Stock Options (NSOs) can be granted to anyone (including contractors and advisors) but are subject to ordinary income tax upon exercise.
Under IRS Section 409A, private companies must grant stock options at an exercise price equal to or greater than the Fair Market Value (FMV) of the company’s common stock. A formal 409A valuation provided by an independent appraiser establishes this FMV and gives the company a “safe harbor” against IRS audits and tax penalties.
If you issue restricted stock (or permit early exercise of unvested options), the recipient may, depending on the structure, be taxed as the shares vest. Filing an 83(b) election within 30 days can allow the recipient to elect current taxation on the value at grant rather than as the shares vest, but the tax consequences are fact-specific and should be evaluated individually.
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