Option Plan

An option plan is a legal document which sets out the main terms through which a corporation can issue options to workers and others. They are commonly used in startups as a form of compensation for workers and advisors.

An important benefit of an option plan is that, once set up, it simplifies the process of issuing options. It will also often set out default provisions which will apply to the options once they are issued, such as vesting provisions, but which can be modified in the option agreement.

These are some of the main considerations when creating an option plan:

• the number and class of shares that can be issued
• default vesting provisions
• whether options cannot be issued for lower than fair market value
• for employees and contractors, what happens to their options if they are terminated for any reason (including death or disability). Often they are given a limited period to purchase any vested options, but cannot purchase even vested options where they have been terminated for cause.