The Startup Employee Equity Agreement is a crucial document used when Canadian startups wish to offer equity compensation to their employees as part of their total compensation package. This agreement is particularly important in the Canadian startup ecosystem, where equity compensation is often used to attract and retain top talent while conserving cash resources. The document needs to comply with Canadian federal and provincial securities laws, tax regulations, and employment standards. It typically covers essential elements such as the type and amount of equity granted, vesting schedules, exercise prices, transfer restrictions, and termination provisions. The agreement should be carefully drafted to protect both the company's interests and the employee's rights, while ensuring compliance with relevant Canadian legal requirements, including securities regulations and tax implications. This type of agreement is commonly used during hiring negotiations or as part of employee retention strategies, particularly for key personnel in high-growth startups.
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1. Parties: Identification of the company and the employee receiving equity compensation
2. Background: Context of the agreement, including employment relationship and equity compensation program
3. Definitions: Key terms used throughout the agreement, including types of shares, vesting periods, and triggering events
4. Grant of Equity: Details of the equity being granted, including number of shares/options and type of securities
5. Vesting Schedule: Specific terms of how and when the equity will vest, including any cliff period
6. Exercise Price and Payment: Details of the exercise price (if options) and acceptable payment methods
7. Tax Obligations: Employee's responsibilities regarding tax implications and company's withholding rights
8. Restrictions on Transfer: Limitations on the employee's ability to sell, transfer, or encumber the equity
9. Termination Provisions: Impact of various types of employment termination on equity rights
10. Company's Right of First Refusal: Company's rights to repurchase shares before they can be sold to third parties
11. Representations and Warranties: Statements of fact and promises by both parties
12. Confidentiality: Obligations to maintain confidentiality of company information
13. Governing Law: Specification of Canadian law and relevant jurisdiction
14. General Provisions: Standard contract clauses including amendments, notices, and severability
1. Drag-Along Rights: Used when the company wants to ensure that minority shareholders must join in the sale of the company if approved by majority shareholders
2. Tag-Along Rights: Used to protect minority shareholders by allowing them to join in sales by majority shareholders
3. Pre-emptive Rights: Include when giving employees the right to maintain their ownership percentage in future funding rounds
4. Board Observation Rights: For senior employees who may be granted rights to observe board meetings
5. Intellectual Property Assignment: Include for technical employees or when IP protection is particularly crucial
6. Non-Competition Provisions: Include for senior employees or when protecting company interests requires non-compete restrictions
7. Special Tax Elections: Include when specific Canadian tax elections (like Section 85) may be relevant
8. Family Law Considerations: Include when provincial family law requirements need specific addressing
1. Schedule A - Share/Option Certificate: Formal certificate detailing the equity grant
2. Schedule B - Vesting Schedule Details: Detailed breakdown of vesting dates and conditions
3. Schedule C - Shareholders' Agreement: Full shareholders' agreement or key terms that apply to the employee shareholder
4. Schedule D - Section 85 Election Forms: Tax election forms if applicable
5. Schedule E - Exercise Form: Template form for exercising options
6. Schedule F - Fair Market Value Calculation: Methodology for determining share fair market value
7. Appendix 1 - Company Capitalization Table: Current cap table showing all shareholders and their ownership percentages
8. Appendix 2 - Risk Factors: Disclosure of risks related to the equity investment
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