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Employee Equity Agreement for the United States

Employee Equity Agreement Template for United States

An Employee Equity Agreement is a legal document used in the United States that outlines the terms and conditions under which an employee receives ownership interest in their employer's company. This agreement typically includes details about the type and amount of equity granted, vesting schedule, exercise terms, and various restrictions on transfer and sale. It must comply with federal securities laws, state regulations, and tax requirements, particularly IRC Sections 409A and 83.

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What is a Employee Equity Agreement?

The Employee Equity Agreement serves as a crucial document in U.S. companies' compensation strategies, particularly for startups and growing businesses. This agreement is used when companies want to align employee interests with company success by offering ownership stakes. The document typically covers grant size, vesting terms, exercise prices, transfer restrictions, and tax implications. It must comply with various U.S. regulations, including SEC rules and IRS requirements. Employee Equity Agreements are particularly common in technology companies and startups, where equity compensation is often a significant part of the total compensation package.

What sections should be included in a Employee Equity Agreement?

1. Parties: Identification of the company and employee receiving equity

2. Background: Context of the agreement and relationship between parties

3. Definitions: Key terms used throughout the agreement

4. Grant of Equity: Details of the equity being granted, including type and amount

5. Vesting Schedule: Timeline and conditions for equity vesting

6. Exercise Terms: Conditions and process for exercising equity rights

7. Transfer Restrictions: Limitations on transferring or selling equity

8. Termination Provisions: Impact of employment termination on equity rights

What sections are optional to include in a Employee Equity Agreement?

1. Right of First Refusal: Company's right to purchase shares before sale to third party

2. Drag-Along Rights: Requirement for minority shareholders to join in sale of company

3. Lock-up Provisions: Restrictions on selling shares post-IPO

4. Acceleration Provisions: Conditions for accelerated vesting

What schedules should be included in a Employee Equity Agreement?

1. Schedule A - Grant Details: Specific details of equity grant including number of shares/options and price

2. Schedule B - Vesting Schedule: Detailed breakdown of vesting timeline and milestones

3. Schedule C - Stockholder Rights: Summary of rights attached to equity ownership

4. Appendix A - Exercise Notice: Form for exercising equity rights

5. Appendix B - Section 83(b) Election Form: Tax election form for immediate taxation of restricted stock

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents

Jurisdiction

United States

Publisher

Genie AI

Document Type

Equity Agreement

Cost

Free to use

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