How to Set Up a New Stock Incentive Plan

Introduction

A Stock Incentive Plan (SIP) is used to grant company equity to eligible grantees. Although there can be many reasons to grant stock or options, the general purpose is to attract, retain, and motivate people who are expected to make important contributions to your company. See this article to learn more about Stock Incentive Plans.

This article explains the steps to create a new SIP in Fidelity Private Shares using our standard templates to generate the plan documents. If you already have an existing SIP, see this article for steps on how to upload an existing stock incentive plan. To make changes to an existing SIP, see this article on how to amend a stock incentive plan. 

Set up stock incentive plan workflow

Let's get started

From the Company Workspace, navigate to Start New Workflow > Equity > Set up stock incentive plan.

If you already have a SIP, you will be asked if the existing plan should be discontinued. Selecting this option prevents new grants from being issued from the existing plan, and any forfeited shares will be returned to the new plan. To set up a new plan separate from the existing plan, clear this option. 

Click Continue.

Enter your plan details

Enter the name of the stock incentive plan and the number of shares allocated.

[callout type="tip"]The number of authorized shares allocated to your plan is generally decided in consultation with lawyers, mentors, board members, and others.[/callout]

Choose whether the plan will allow early exercise grants. Select Yes to allow grants that let grantees exercise their options before they vest. See this article for more information about early exercise.

Click Continue.

Check Constraints

The workflow compares the reserved shares in the SIP to the available authorized shares. This check helps confirm that the requested shares do not exceed the number of authorized shares.

If the number of shares exceeds the available authorized shares, you’ll see a message like the example below. You can still continue with the workflow, but you may wish to consult your legal counsel if you have any questions.

Set grant form defaults

Set the initial defaults for the Grant Form template used during the Grant Plan Shares workflow and click Continue.

• Vesting period: the number of years over which vesting stock is distributed.
• Vesting frequency: the frequency with which vesting stock is granted.
• Include vesting cliff: a typical option vesting scheme spans four total years (sometimes five) with a one-year initial cliff. A one-year cliff means no shares vest until the first anniversary of your start date. An employee’s shares do not vest until the cliff ends, at which point all of the shares that should have been vested during this time become vested at once. After that, vesting typically occurs monthly or quarterly over the remaining time period.
• Cliff duration: length of time for the vesting cliff. One year is a typical length.
• Acceleration clause: an acceleration clause establishes the circumstances under which the vesting of some or all the equity in question accelerates, typically in connection with a change of control of the company (e.g. sale). If the criteria set forth in the acceleration clause are met, an employee will immediately vest some portion or all of their unvested equity. For example, a single-trigger acceleration clause provides that upon a sale of the company, any then-unvested options automatically and immediately vest.
• Termination clause: how time-vested restricted stock units (RSUs) are handled at termination.

Request approval

Choose how to obtain the required approvals. You can generate a consent using our templates, upload your own draft consent documents for signature, or handle the consent in a separate workflow. If approval has already been obtained, you can upload the executed documents. 

Checkpoint

Review the documents generated by the workflow and make any necessary edits. You can also send the workflow for legal review or share the documents with a third party. When you’re ready, click Continue.

Wait for approvals

If you chose to generate a consent or upload a draft, a signature request will be sent. Once all required approvals are received, the workflow will be complete and your SIP will be ready to use. You can find all generated and uploaded documents in the Data Room.

Screenshots are for illustrative purposes only.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

Fidelity Private Shares LLC provides cap table management and other administrative services to private companies and their equity compensation plans.

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