The 7 Equity Documents You Should Always Have on File

Shareholders Education

It's often hard to read legalese and figure out the stack of paperwork you receive when starting a new job at a private tech company. Here is a list of documents you should always have in your personal records.

The company's equity incentive plan

A company's equity incentive plan (sometimes called the employee stock option plan) is a document that outlines the company-wide program of awarding or granting various types of equity compensation. The typical flavors are restricted stock, incentive stock options (ISOs), non-qualifying stock options (NSOs), restricted stock units (RSUs), and stock appreciation rights (SARs).

Options are the most common award for employees, so this discussion will default to documents relating to options. The plan will also describe the process for granting and exercising stock options. Importantly, it will often set out some transfer restrictions, including the company's right of first refusal.

Grant documents

The grant documents issue your options (or other awards). These documents typically include a Notice of Grant and a Stock Option Agreement. The Notice of Grant will list, among other things, the number of shares for which you have an option to purchase, the exercise price, the vesting commencement date, the vesting schedule, and the expiration date of the options. The Stock Option Agreement will describe in detail the terms of your grant, including the mechanics by which you can exercise, exactly how the vesting schedule works, and the restrictions in place around your options.

Exercise documents

The document by which you exercise your options is usually called a Notice of Exercise. It will include the number of shares you are exercising your option for, the price per share, and the total price paid. Sometimes, the company will also include some disclosure regarding the tax consequences of exercising your options. The company should also provide you with IRS Form 3921, which provides the fair market value (FMV) of the stock at the time of exercise; otherwise, the company should provide you with the FMV.

Shareholder agreement

Once you exercise your options, you will often receive and sign a Shareholder Agreement or Restricted Stock Agreement. Whereas the Stock Option Agreement governs the terms of your options, this agreement will govern the terms of your share ownership. Important provisions here include your rights to information, your right to vote your shares, transfer restrictions, and the company's right of first refusal.

Share certificates

Once you exercise your options, the company (or the company's outside legal counsel) may issue you share certificates. It's important to keep the physical share certificates safely, but also keep a PDF version handy. Take note of the legends on the certificates, which contain important information about transfer restrictions. More recently, companies are using equity administration platforms to manage share issuance and ownership instead of issuing physical share certificates.

Company by-laws

Recently, some companies have started including provisions in their by-laws that materially affect your rights as a stockholder. Such provisions include restrictions on your ability to sell your shares and hoops you'd have to jump through to do so. For this reason, it's good to request the by-laws from the company or at least get written confirmation that there are no provisions that materially impact your rights as a shareholder.

Separation letter

If you leave the company, you will be  provided a separation letter, often called a “Letter of Termination”. Don't worry, it's technically called termination even if you resign. It's important to read this carefully and keep it on file. If you have options, the separation letter will inform you how many options you have vested, the exercise price, and how long you have to exercise those options (for ISOs, it is 90 days from your last official day of employment.


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