I have advised many clients on the process and order of operations for stock option grants to employees of their corporation. Here is a primer and streamlined 6-step process for granting stock options to employees, with the right steps to ensure completeness, efficiency, and agility:

1.  Board Consent Approving the Stock Option Plan and Related Docs: This is the foundational step to ensure the plan is formally adopted and related documents, like the Notice of Stock Option Grant, are approved. This is often addressed in the Organizational Board Consent, but can be addressed in a standalone Board Consent later.


2. Employment Offer Letter: Includes a summary of the stock options to be granted (a specific number, never a percentage) and vesting terms for each employee (like 4-year monthly vesting with a 1-year cliff and double-trigger acceleration). Note that you can send out Offer Letters AFTER the Board approves the Stock Option Plan and BEFORE obtaining a 409A valuation and BEFORE obtaining a Board Consent for the grant - just make the offer of stock options in the Offer Letter subject to Board approval (which Board approval also often approves the 409A valuation). Also, do not try to include the exercise price in an Offer Letter.


3. 409A Valuation: Obtain a valuation to determine the fair market value of the stock, which sets the exercise price for the options. It's best to get the ball rolling early on 409As and note that they are good for 12 months unless there is a material change to the business that warrants getting a new one earlier (like a financing round).


4. Board Consent Approving Individual Grants (and 409A valuation): Approves the specific number of options for each recipient. This can be for a single grant to one employee or for multiple grants to multiple employees (often it's best to consolidate multiple grants into one Board Consent to simplify for the Board). The Board Consent will often also approve a 409A valuation if needed, though if you have a current 409A valuation then you can just approve the stock option grants.


5. Notice of Stock Option Grant: Officially grants the stock options to the employee, including with details like the exercise price obtained from the 409A valuation. You need to pass through all of the above steps before you can formally grant Stock Options with a Notice of Stock Option Grant.


6. If you are on Carta, the process can be similar but with little tweaks using their automated tools.


Bonus bullet: The process is basically the same for advisors/contractors, except they won't receive an Offer Letter like employees (usually - they receive the offer of stock options in an Advisor Agreement or Consulting Agreement), and advisors/contractors receive NSOs not ISOs.


That's about it as far as a primer. If you want to learn more and potentially work with me, just send me an email through the contact form here on my website or at brooks@lightlegal.com and we can set up a time for an intro Zoom meeting.

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