Employee Option Plan

Employee Option Plan

For fast growing startups, offering key employees equity in the company via stock options are a great incentive to both keep top employees around and provide even more reason for them to help grow the value of the company.

This do-it-yourself document generator handles all the complexities of drafting an Employee Option Plan. In less than 15 minutes you’ll have a comprehensive, tailored agreement that complies with the ATO’s startup tax concessions for deferred taxartion, putting you on track to supercharge your company’s growth.
$ 999 incl GST
Employee Option Plan

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How does it work?

Our intuitive tool will guide you through the process step-by-step from start to finish. It’s quick, easy and simple to understand – just how legal documents ought to be.

The expert interview wizard will help you answer a few questions and prepare your document in the background. You’ll have your custom Employee Option Plan in 15 minutes or less.

When you’re done, print or download a PDF version for you to review, customise or sign. 

What is an Employee Option Plan?

An Employment Option Plan is an agreement between a company and an employee offering the employee the option to to acquire shares in the company. It is a form of compensation known as equity compensation.

Under an Employee Option Plan scheme the employee is offered a set number of options to purchase shares in the employer company for a fixed price in the future. It is beneficial to employees because it is a chance for employees to get in early and financially participate in the upside of the company until an ‘exit event’ happens.

When should I use an Employee Option Plan?

The Employee Option Plan should be used if you’re offering options to an employee to purchase shares in your company, and you want to do so in a tax-deferred manner under the ATO’s startup tax conditions (subject to eligibility criteria and company’s ongoing compliance).  

Note for the ‘startup’ tax concession to apply, the scheme can permit options over ordinary shares only, and the exercise price needs to be the “fair market value” of an ordinary share as at the date on which the options were granted. 

Under our unique system, you can also create a tax-deferred scheme that is not subject to the ‘startup’ tax concession limitations, including the ability for options to be issued with a nil exercise price.

What topics does an Employee Option Plan cover?

  • Startup Tax Concession eligibility 
  • Group Structure and Details of the Company issuing the Options
  • Date of the Option Plan 
  • Vesting Timetable (1-5 years)
  • Performance-based vesting criteria
  • Forfeiture conditions
  • Treatment for ‘good leavers’ and ‘bad leavers’
  • Exercise procedures
  • Procedure on an exit event
  • Drag-along provisions
  • Important Notices
  • Boilerplate language
  • Automatically generate offer letters to employees for each grant of options at the same time!

What are the main decisions I need to make in creating an Employee Option Plan?

  • What Option Plan Structure will you choose? Startup or Non-Startup?
  • Do you want to add a general offer letter and how many offer letters do you want to make?
  • Do you want to add performance targets or other vesting conditions for the employees?
  • What time-based vesting criteria will apply?
  • What performance-based vesting criteria will apply?
  • Should we include forfeiture conditions?
  • Treatment for ‘good leavers’ and ‘bad leavers’

What other names does an Employee Option Plan go by?

An Employee Option Plan is also known as: 

  • Share Plan
  • Employee Share Plan
  • Employee Share Option Plan
  • Employee Stock Option Plan
  • Employee Share Option Scheme
  • Employee Share Scheme
  • Employee Option Scheme
  • Employee Option Plan
  • Participant Share Ownership Plan
  • ESOP
  • PSOP
  • Stock Option Plan

Frequently Asked Questions

The parties involved are the employer/company in which the option to purchase shares is being offered, and the employee being offered the options.

Generally you would need this document when the employer is looking to offer options to an employee to allow the employee to participate in the upside potential of your company until an ‘exit event’.

Yes, our share plan document allows the employer company to be a subsidiary of the parent company issuing the options.

No. Rights to vote and receive dividends will only arise once the options have been exercised and shares have been purchased. 

Vested Options exist when certain conditions for the options to be exercised have been satisfied, hence making the options vested options. Where the vesting conditions on the options have not been satisfied, the options are considered to be unvested options.

A vesting timetable shows how the options will vest over time (usually showing increase in vested options on an annual basis).

Yes, in all likelihood. The exercise price for the options must not be less than the market value of ordinary shares at the date of grant.  So you’d need a valuation to support that.  

Note in some cases, this could potentially be nil.

Either way, we can point you in the direction of some economical company valuation experts.

By default, a formal disclosure document is required unless an exception applies. Consider whether any of the following exceptions may apply:

Senior managers — offer to a senior manager of the company/employer or their spouse, parent, child, brother or sister or a body corporate controlled by any of them – s 708(12) of the Corporations Act;

Nil exercise price —  no consideration is payable for the grant of the options and the exercise price is nil – s 708(15) of the Corporations Act. Note that this exception can only be available if the plan is not subject to the “startup” limitations discussed at the start of this Smart Q&A form; and/or

Small scale offering— the offer of the options will breach neither the “20 investors ceiling” nor the “$2 million ceiling” under ss 708(1)-(7) of the Corporations Act.

If you’re unsure on these point – please get in touch with us and we an assist.

The startup tax concessions means that an employee participating in an Employee Option Plan only has to pay tax upon acquiring financial benefit from the options or shares, i.e. when the employee sells the shares.

A good leaver provision addresses circumstances where the employee who holds options or shares leaves the company under good terms such as retirement, illness or injury, death, or redundancy dismissal. Under these circumstances the company can only force all unvested options of the employee to lapse but not vested options. 

A bad leaver provision deals with circumstances where an employee leaves under bad terms such as due to dismissal for breach of contract, fraud or other wrongdoing. Under these circumstances, the company can force the employees’ unvested and vested options to lapse.

  • Whether you want to comply with the ATO’s startup concessions, or not
  • Employee Details
  • Company Details
  • Vesting timetable

There are several signing options available. How you sign largely depends on where the parties are located and if they will attend signing together. You can print on paper and sign, or use electronic signature tools such as Docusign or Hellosign.

If you need any assistance please contact us directly, we would be happy to assist.

If you have any questions or are uncertain about any aspect of the document please do not sign it or use it, Please contact us directly and we would be happy to assist.

Absolutely! Get in touch with us and we can provide a fixed-fee price to review it.

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