Employee Optionholders and Shareholders – Foresight is Key to Maintaining Flexibility for the Future

Companies often use stock option plans to attract, retain and motivate their employees and consultants, as well as to bring their interests into alignment with those of the shareholders. For early-stage companies, a policy of offering options has the additional advantage of conserving cash in the initial years. If such plans are not properly implemented, however, the options, or the shares issued on exercise of the options, may interfere with future financing or other transactions the company may later wish to undertake. When implementing a stock option plan, it is essential to draft the plan to ensure maximum flexibility for the company in its future transactions. Although the issues are too numerous to address completely, we have highlighted below some of the key areas to consider when drafting appropriate stock option plans and shareholders’ agreements.