• Home
  • About First Venture Legal
  • Areas of Practice
  • Blog
  • Contact Us

First Venture Legal

Get a free consult

When Should a Startup Set Up Its Employee Equity Option Pool?

January 16, 2015 by James Johnson Leave a Comment

Tweet

Many founders wonder when they need to plan out how much of the equity will be made available to compensate the key employees of the company — this is the process of creating or setting aside an “option pool”. The best time to do this is at the beginning of the company, when it is being formed and when the initial equity is being dealt out to founders (and potentially investors). There are a couple of reasons why setting up the option pool as soon as possible is critical. First, you will want to make sure that there is sufficient stock to be able to provide equity to all the employees who will receive equity. This dovetails into the second issue, which is the concern that investors will have of being diluted. If investors know the size of the option pool, then deals can be adequately structured to avoid or minimize the dilution of private investors. Otherwise, companies run the risk of measurably diluting their investors if an employee equity pool has to be created or expanded to accommodate additional equity for employees.

Entity Structures and Formation, Startup Financing

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

(617) 600-6132

Site Disclaimer

None of the information presented on this site is intended or inferred to be or to be used as legal advice or as a substitute for legal advice, or is intended or inferred to create an attorney-client relationship. If you require legal advice or the services of an attorney, please contact First Venture Legal or another attorney for that specific purpose.

First Venture Legal and its attorneys claim no special training or expertise in any particular area of law. By accessing this site or its contents, either directly or through a third party, you acknowledge that you understand and accept the terms of this disclaimer. Thank you.

Copyright © 2023 · First Venture Legal · PO Box 410121 Cambridge , MA 02141 · Powered by ThriveHive