Share Grant Agreement

A share grant agreement is a legal document that outlines the terms and conditions of transferring ownership of company shares to employees or contractors.

For startups and small businesses, share grant agreements are an attractive way to incentivize their team members without needing to offer a high salary or other benefits. This is especially true for companies that are just starting out and have limited funds.

In a share grant agreement, the business owner promises to give a certain number of shares of the company to the employee or contractor. These shares can be subject to certain restrictions or vesting periods, which means that the employee must meet certain conditions before they can access the full value of the shares.

The most common way to structure vesting is through a “cliff” and “graduated” system. The cliff is a period of time, typically one year, where the shares are not vested. After the cliff period expires, the shares start vesting gradually over time, such as quarterly or monthly.

A share grant agreement can also include other terms, such as non-compete or non-disclosure clauses. These clauses protect the company`s intellectual property and trade secrets from being shared or used by competitors.

It is important to note that a share grant agreement is a legally binding document that should be drafted carefully. The document should be reviewed by a lawyer to ensure that all necessary terms and conditions are included and legally sound.

Additionally, companies should have a clear understanding of the tax implications of granting shares. In some cases, the grant of shares can be considered taxable income for employees, so consulting with a tax expert is recommended.

In conclusion, a share grant agreement is a valuable tool for startups and small businesses looking to incentivize their team members without needing to offer high salaries or other benefits. However, the document should be drafted carefully and reviewed by a lawyer, and companies should understand the tax implications involved.