Syndicate Legal Advisory Services prepares the complete set of documents required for a corporation, LLC, or other entity to adopt an equity incentive plan providing for the grant of nonqualified (nonstatutory) stock options — options that do not meet or do not seek the requirements of Section 422 — and to make the first grants under it, in any U.S. state. A nonqualified stock option gives the holder the right to buy shares or units at a fixed exercise price over a stated term; the holder recognizes ordinary income at exercise on the spread between the exercise price and the fair market value, the company takes a corresponding deduction, and the shares then start a capital-gain holding period. Because NSOs are not bound by the Section 422 restrictions, they can be granted to non-employee directors, advisors, consultants, and contractors, in any amount, with any exercise period, and — for an LLC or partnership — over units rather than stock; the governing constraint is instead Section 409A, which requires an exercise price at or above fair market value on the grant date and a plan and award drafted to avoid deferred-compensation treatment. Working from the client’s answers to a structured intake and from the entity’s charter or governing agreement, capitalization records, and valuation, we draft the plan and award documents to satisfy Section 409A and the securities, accounting, and state-law rules that apply, together with the approvals, the reserve, the valuation support, and the administration tools the entity will use for every grant that follows. State securities notice-filing fees, valuation fees, and other third-party charges are not included in the flat fee and are the sole responsibility of the client.
Scope of work includes:
Plan design planning and intake — a structured intake and written summary confirming the entity’s type and state, its authorized and outstanding equity, and its capitalization; the size of the reserve and any evergreen increase; whether the plan will be NSO-only or will also authorize incentive stock options, restricted stock, restricted stock units, or stock appreciation rights (and, for an LLC, unit options and profits interests); the eligible participants — employees, officers, non-employee directors, advisors, consultants, and contractors — and the service-provider requirements of the securities exemption and Section 409A; the plan administrator and its authority; the default vesting schedule and the acceleration provisions on a change of control; the option term and the post-termination exercise periods for termination without cause, for cause, death, and disability (which, unlike ISOs, may extend as long as the term, subject to the 409A rules on extensions); whether early exercise will be permitted; the treatment of options in a merger, sale, or recapitalization; the exercise methods, including cashless and net exercise; the company’s repurchase right and right of first refusal on exercised shares; the fair market value determination method and the Section 409A valuation the company will rely on; the withholding obligations for employees and the reporting for non-employees; and the securities-law exemption the grants will use.
Equity incentive plan — drafting of the plan in full, addressing: the purpose, definitions, and eligibility; the reserve, the counting of shares or units, the return of forfeited and expired awards, and the adjustment for splits, dividends, recapitalizations, and other changes in capitalization; the administration provisions and the administrator’s discretion; the nonqualified option provisions — the exercise-price floor at fair market value on the grant date, the term, the vesting and exercise mechanics, the non-transferability (with the permitted transfers to family members and trusts the plan may allow), and the post-termination exercise rules; the Section 409A compliance provisions, including the prohibition on repricing or extension except as the regulations permit and the treatment of a 409A-compliant extension; the optional ISO, restricted stock, restricted stock unit, and stock appreciation right provisions; the payment and net-exercise mechanics and promissory-note exercise where permitted; the tax withholding and reporting provisions; the treatment of awards on termination of service, death, and disability; the change-of-control provisions — assumption, substitution, cash-out, or acceleration; the market-standoff, repurchase, and right-of-first-refusal provisions on exercised equity; the clawback and recoupment provisions where wanted; the plan’s term, amendment, and termination; and the governing-law, no-right-to-service, and data-privacy provisions. For an LLC, the plan is drafted as a unit option or equity incentive plan consistent with the operating agreement, with the profits-interest alternative addressed where the company prefers it.
Award agreements and forms — the form of nonqualified stock option agreement and notice of grant, with the separate forms for employees and for non-employee directors and consultants reflecting their different tax and securities treatment; the notice of exercise and the exercise agreement with the stockholder or member representations and joinders; the early-exercise agreement with the repurchase provisions and the Section 83(b) election materials where early exercise is permitted; the cashless and net-exercise election forms; and the form of award amendment and the 409A-compliant extension or modification form.
Approvals — the board or manager resolutions adopting the plan, reserving the equity, approving the forms of award agreement, and delegating administration; the shareholder or member approval where the charter, the governing agreement, an investor agreement, or state law requires it (shareholder approval is not required for NSOs by the tax code, but is often required by the corporation’s own documents or by exchange rules for a listed company); the investor consents required under existing agreements; and the resolutions approving the initial grants, with the fair market value determination for each.
Valuation and securities-law documentation — the documentation of the fair market value determination for the initial grants and the coordination of an independent Section 409A valuation where the company’s circumstances require one; the Rule 701 exemption documentation and the disclosure package required when grants exceed the Rule 701 threshold, or the alternative exemption for grants to non-service-provider recipients; the state notice filings; and the state-law compliance provisions some states require.
Administration toolkit — the option ledger and capitalization-table integration, the grant-approval checklist and the fair-market-value refresh procedure, the vesting and expiration calendar, the exercise, withholding, and Form W-2 or 1099 reporting procedures, the Rule 701 aggregate-sales monitoring, and a one-page summary for the administrator of the steps required for each grant, exercise, termination, and 409A-sensitive modification.
Deliverable: a complete, indexed equity plan file (electronic and hard copy) containing the written summary of the review, the executed plan, the forms of award and exercise agreements, the approvals and investor consents, the initial grant resolutions and award agreements, the valuation support, the securities-law filings, the option ledger and administration toolkit, and the compliance calendar, with a signature-ready version of each document for execution by the directors or managers, owners, and participants.