Do I Need A Share Reserve to Grant Compensatory Stock Options?


Stock options are key to startups. Despite some larger companies adopting restricted stock award plans, options are still the way to go for startups. They are a vital recruitment, incentive and retention tool.

Share Reserve for Compensatory Stock Options

I was recently asked by a private company: Do I have to adopt a stock option plan with a share reserve in order to grant compensatory stock options?

The question was motivated by the concern that it was too early to put a stake in the ground regarding the size of a share reserve. You see, the founders didn’t know yet how many shares to reserve under a plan and didn’t want to establish a reserve that might be too large because that would then drive down the price per share in the company’s anticipated financing.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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