What are option agreements?
Option grants are how companies award equity to employees. Signing an offer letter isn't enough. The option agreement outlines all the details of an employee's option grant. The option agreement is a more detailed version of an offer letter. We can compare this to selling a house - an offer letter is an agreement that outlines the price of the house. The option agreement is the final contract that lists all the details of closing date, inspection contingency, etc.
Similarly, the option agreement is a much more detailed offer letter. The option agreement includes the number of options, vesting schedule, vesting start date, expiration date, strike price, and more.
What happens when I issue options?
The option agreement you upload will be attached to every option issued through Pulley. The employee will receive an email from Pulley to accept their option grant. They can then see the option agreement with all the details, and sign for their options through Pulley. Pulley generates a downloadable document with signatures after both the company (see option signatory) and the employee signs the option grant.
Where can I find an option agreement?
Many law firms provide free templates for option agreements for their clients. Ask your lawyer for their standard set.
Pulley also provides a set of option agreements that work for most option plans. These templates are provided without guarantee. You should check with your lawyer before using the documents.
Can I issue options without an option agreement?
This is not recommended. Issuing options with an agreement would be similar to a handshake deal. Even if you and the employee agree to all the material terms today, there could be disputes in the future. A signed option agreement helps resume these disputes.
For a deeper dive into the world of stock options, please refer to our guide on stock options.