Set up a scheme.
Reward a UK team.
We help US companies set up, launch and manage fully compliant share schemes designed to reward UK employees.
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1. Board and shareholder approval
The board of directors need to adopt and agree to a share plan – this is the framework for US option grants.
Since a non-US company's standard equity plan won’t satisfy US requirements, they typically have to devise a 'sub-plan' or a supplementary plan, designed to align with US rules concerning ISOs and NSOs.
This sub-plan is added to the company's primary equity plan that encompasses all employees, ensuring those in the US are awarded options under the regulations of both the parent plan and the sub-plan. In case of any contradiction, the sub-plan terms would take precedence.
Furthermore, within one year of adoption, the shareholders need to approve the share plan, the US sub-plan, and a limit on the number of shares that can be issued upon exercise of ISOs.
2. 409A valuation
As mentioned, to prevent adverse tax implications under Section 409A of the US tax code, the exercise price of each option should not be less than the FMV of the company's ordinary shares at the time of the grant.
3. Compliance with US securities law
You can set conditions for co-founders, such as Before granting options in the US, a company should determine whether any filings or notifications are required in the US state where each option recipient resides. Many states require a simple filing, and non-compliance can result in penalties.
At the federal level, companies often use Rule 701 under the US Securities Act of 1933 to establish an exemption for option grants
4. Grant process and documentation
The board should formally approve the options. The date of this approval will be the grant date.
This grant approval should include specifics such as the recipient's name, the number of shares subject to the option, whether the option is an ISO or a non-qualified option, the exercise price, vesting terms, whether the option can be exercised over unvested shares, and the maximum term of the option.
Keep in mind that the option recipient must be actively employed at the time of the grant – an option can’t be granted in anticipation of a future start date.
