This article was contributed by William W Eigner, Esq. & Brian Headman of Procopio, Cory, Hargreaves & Savitch LLP. William Eigner’s bio is available at https://www.procopio.com/attorneys/william-w-eigner and his LinkedIn is available at https://www.linkedin.com/profile/view?id=616218&trk=tab_pro.
A properly selected Board of Directors and Board of Advisors can be an invaluable asset to an emerging company. Building these boards is an early opportunity for a start-up company to gain credibility, industry contacts, experienced counseling and even access to cash. However, the right board members do not always come easily, and although some companies may have their pick of top industry players, many start-ups struggle to recruit board members that are the right fit for their company.
Nearly every start-up has limited cash. This does not, however, have to limit their ability to recruit directors and advisors. A stock option or other equity incentive plan can allow a start-up company to offer prospective independent directors and advisors a financial upside beyond what the company’s cash account can currently afford. Additionally, option-based compensation creates powerful incentives for directors and advisors to work diligently to help drive company growth and success. A stock option plan should be established early, and if administered properly, it can become a company’s top board recruitment tool.
In counseling hundreds of emerging companies through this process, rules of thumb emerge that help provide guideposts for entrepreneurial companies. In the following five-part blog series, built from a series of interviews with attorneys who counsel start-ups in their issuance of stock options, will discuss five of these rules of thumb.
Check back on Wednesday, September 19, for Rule of Thumb No.1: Reserve 10-20% Of Your Company’s Outstanding Equity For A Stock Option Plan.