Stock Plan Setup

stock-plan-setup

Agent: General Counsel

L1 general counsel (1x) reporting to the COO, responsible for legal strategy, IP assignment, stock plan setup, and entity structure decisions.

Department ethos: ideal-legal.md

Skill Description

Sets up the employee equity incentive plan including option pool sizing, vesting schedules, exercise terms, and all required plan documents and board approvals.

When to Use

• When the company is ready to establish its first equity incentive plan to attract and retain key hires.
• When preparing for a priced financing round where investors require a post-money option pool of a specified size.
• When the existing plan needs amendment to increase the share reserve, add new grant types (RSUs, SARs), or comply with updated tax regulations.

Workflow

1. Pool Sizing Analysis: Model the option pool size using the pool sizing methodology in references/framework.md. Calculate based on hiring plan, role-level grant ranges (industry benchmarks), advisor grants, and 15-25% buffer. Run conservative, base case, and aggressive scenarios. Deliverable: pool sizing model with share counts, percentage of fully diluted capitalization, and scenario analysis.
2. Plan Structure Design: Define key plan terms using the decision matrix in references/framework.md. Cover eligible participants, grant types (ISOs per IRC 422, NSOs, RSAs, RSUs), vesting schedules (standard four-year with one-year cliff), exercise windows (90-day post-termination vs. extended), early exercise rights, acceleration provisions (single vs. double trigger), and repurchase rights. Deliverable: plan term sheet summarizing all material provisions.
3. Document Drafting: Draft the complete document package per references/framework.md: equity incentive plan, stock option agreements (ISO and NSO forms), option exercise agreement, and restricted stock purchase agreement. Ensure compliance with IRC Section 409A (fair market value pricing), Section 422 (ISO requirements including $100K annual vesting limit), and applicable state securities laws. Deliverable: complete plan document package.
4. Board and Stockholder Approval: Prepare the board resolution adopting the plan, stockholder consent approving the plan and share reserve (required within 12 months per IRC 422(b)(1)), and state securities filings (e.g., California 25102(o) notice). Deliverable: executed board resolution, stockholder consent, and filing confirmations.
5. Administration Setup: Establish the grant administration process per the administration checklist in references/framework.md. Cover 409A valuation cadence, grant approval workflow, exercise procedures, ISO $100K tracking, and tax withholding obligations. Produce plan package using template at assets/equity-plan-package-template.md. Deliverable: plan administration guide for ongoing equity management.

Anti-Patterns

• Under-sizing the pool: Setting the option pool too small to avoid near-term dilution, forcing a pool increase at the next round when the company's leverage is weakest. Why: investors typically require the pool increase to come from pre-money, diluting existing stockholders; sizing correctly upfront preserves founder ownership.
• Omitting early exercise provisions: Failing to include early exercise rights that allow employees to exercise unvested options and file 83(b) elections. Why: early exercise combined with an 83(b) election can provide significant long-term capital gains tax advantages for early employees, making offers more competitive.
• Using boilerplate vesting without strategic thought: Applying a standard four-year/one-year-cliff schedule to every role without considering retention dynamics for different functions. Why: some roles (e.g., senior executives) may warrant acceleration provisions or back-weighted vesting to align with long-term strategic milestones.

Output

On success: Produces the complete equity incentive plan package containing the pool sizing model, plan document, form agreements, board resolution, stockholder consent, securities filings, and administration guide. Delivered to the board, outside counsel (if applicable), and cap table management system.

On failure: Report which plan design decisions remain unresolved (e.g., pool size pending hiring plan, acceleration terms pending negotiation), what documents are drafted in interim form, and what approvals are still required.

Related Skills

• founder-equity-issuance -- Founder equity issuance should be coordinated with plan setup to ensure consistent vesting terms and cap table accuracy.
• 83b-election-coordinator -- 83(b) election coordination is triggered when the plan permits early exercise of unvested options or restricted stock grants.