Employee equity agreement template

What is an employee equity agreement

Equity compensation is a type of compensation that offers employees equity ownership in a company. Startups use employment offer letter with equity as a tool to attract top talent and give them an incentive to grow with the company.

An employee equity agreement is the legal document that outlines the terms of an equity compensation plan. The agreement usually includes information such as the type of equity awared, number of options or shares, vesting schedule, and information that's important to exercising options.

An employee equity agreement is a critical component of any employee equity program. It is essential to have one in place to protect the interest of both the employer and employee and help ensure a long-lasting working relationship.

Key components of an employee equity agreement

An equity compensation agreement typically includes the following key components:

• Grant of equity. The agreement will state the type of equity (such as stock options, RSUs, or SARs) and the number of shares/options being granted.
• Exercise price. If the equity grant is in the form of stock options, the stock options offer letter will specify the exercise price, which is the price at which the employee can purchase the underlying stock.
• Vesting schedule. The vesting schedule will outline when the employee's equity will become available. Vesting can occur on a time-based schedule or upon the achievement of specific milestones.
• Exercise expiration. The agreement will outline what happens to the employee's equity if their employment with the company terminates. For example, the agreement may state that the options can be exercised 10 years from the start date, after which it automatically expires.
• Tax implications. The agreement will specify the tax implications such as how the equity grant will be taxed and when taxes must be paid. It will also state taxation details specific to the jurisdictions of the recipient's location.
• Governing law. The agreement will specify the governing law that applies to the agreement and any disputes that may arise.

Employee equity agreement template

In the Cake app, we refer to this document as the "Offer Letter". The Offer Letter is a formal document issued to an employee or contractor, giving them the legal right to the options. It sets out all of the specific terms that apply to that individual employee or contractor.

The Offer Letter serves as an extension of the Plan Rules, which apply equally to all participants under the plan.