Syndicate Legal Advisory Services prepares the complete set of documents required for a corporation to adopt an equity incentive plan that permits the grant of incentive stock options under Section 422 of the Internal Revenue Code — together with the nonstatutory options, restricted stock, and other awards most plans also authorize — and to make the first grants under it, in any U.S. state. An incentive stock option gives an employee the right to buy shares at a fixed exercise price over a term of up to ten years, with the tax advantage that no ordinary income is recognized at exercise and the entire gain is taxed as long-term capital gain if the shares are held for the required periods; that treatment depends on a plan approved by the shareholders within twelve months of adoption, grants made only to employees, an exercise price at or above fair market value on the grant date (and 110% of it for a 10% shareholder), a term and post-termination exercise period within the statutory limits, and the $100,000 annual first-exercisable limit, any of which, if missed, converts the option to a nonstatutory option. Working from the client’s answers to a structured intake and from the corporation’s charter, capitalization records, and valuation, we draft the plan and award documents to satisfy those requirements and the securities, accounting, and state-law rules that apply, together with the approvals, the share reserve, the valuation support, and the administration tools the corporation 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 corporation’s state, charter, authorized and outstanding shares, and capitalization; the size of the share reserve (as a number of shares and a percentage of the fully diluted capitalization) and any evergreen increase; the award types the plan will authorize — incentive stock options, nonstatutory stock options, restricted stock, restricted stock units, and stock appreciation rights — and the eligible participants for each (ISOs to employees only; other awards to employees, directors, consultants, and advisors); the plan administrator (the board or a compensation committee) and its authority; the default vesting schedule and the acceleration provisions on a change of control; the post-termination exercise periods for termination without cause, for cause, death, and disability; whether early exercise will be permitted; the treatment of awards in a merger, sale, or recapitalization; the exercise methods and the corporation’s repurchase right and right of first refusal on exercised shares; the fair market value determination method and the Section 409A valuation the corporation will rely on; 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 share reserve, the counting of shares, the return of forfeited and expired shares, and the adjustment for stock splits, dividends, recapitalizations, and other changes in capitalization; the administration provisions and the administrator’s discretion; the incentive stock option provisions required by Section 422 — the employee-only limitation, the exercise-price floor and the 10% shareholder rule, the ten-year and five-year term limits, the $100,000 limit and the ordering rule, the post-termination exercise limits, the non-transferability requirement, and the shareholder-approval condition; the nonstatutory option, restricted stock, restricted stock unit, and stock appreciation right provisions; the vesting, exercise, and payment mechanics, including net exercise and promissory-note exercise where permitted; the tax withholding provisions; the treatment of awards on termination of service, death, and disability; the change-of-control provisions — assumption, substitution, cash-out, or acceleration; the Section 409A compliance provisions; the market-standoff, repurchase, and right-of-first-refusal provisions on exercised shares; the clawback and recoupment provisions where wanted; the plan’s term, amendment, and termination; and the governing-law, no-right-to-employment, and data-privacy provisions.
Award agreements and forms — the form of incentive stock option agreement and notice of grant, the form of nonstatutory stock option agreement, the form of restricted stock and restricted stock unit agreement where authorized, the notice of exercise and the exercise agreement with the stockholder representations and joinders, the early-exercise agreement with the repurchase provisions and the Section 83(b) election materials where early exercise is permitted, the form of ISO disqualifying-disposition notice, and the form of award amendment.
Approvals and shareholder consent — the board resolutions adopting the plan, reserving the shares, approving the forms of award agreement, and delegating administration; the shareholder approval of the plan by the vote and within the twelve-month period Section 422 requires, by written consent or at a meeting with the notice and information statement; 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 corporation’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; the state notice filings (such as the California Section 25102(o) notice); and the state-law compliance provisions some states require in a plan offered to their residents.
Administration toolkit — the option ledger and capitalization-table integration, the grant-approval checklist and the fair-market-value refresh procedure, the ISO $100,000-limit tracking worksheet, the vesting and expiration calendar, the exercise and withholding procedures, the disqualifying-disposition tracking for Form W-2 reporting, the annual Form 3921 information-statement procedure for ISO exercises, the Rule 701 aggregate-sales monitoring, and a one-page summary for the administrator of the steps required for each grant, exercise, and termination.
Post-adoption records and compliance — the record book entry of the plan, the approvals, and the initial grants, the updated capitalization table reflecting the reserve, and the compliance calendar entries the plan creates (the shareholder-approval deadline, the plan’s ten-year term, the valuation refresh schedule, the Form 3921 deadline, and the Rule 701 and state-notice thresholds).
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 board and shareholder 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, shareholders, and participants.