The following guide will help you decide which parameters need to be decided for a stock option plan. For remaining questions, contact one of the partnering law firms.

The parameters you need to decide

ParameterWhat to decideHow to decide
Size of the poolNumber of options reserved for employees, with one option equal to one common share of the company.

It is often also expressed in percent of the total shares.
Discuss with your board, they have to approve the plan.

Common practice at the seed stage is 5 - 10% of the company’s share capital on a fully diluted basis. This typically goes up to 20% during the company lifetime.
Vesting
  1. Number of years
  2. Cliff or not
  3. Interval of allocation
Discuss with your board. Common practice is 3 - 4 years duration, monthly allocation, 1 year cliff.
Accelerated vesting at exit, change of control or IPOChoose among 3 possibilities:
  1. Single trigger: Automatic full vesting
  2. Double trigger: Automatic full vesting only if
    (i) transaction (exit, change of control, IPO) occurred and
    (ii) a certain number of months pass after the transaction (e.g. 12) or termination of employment
  3. Accelerated vesting only as determined by board of directors
Also this you should discuss with your investors. The common practice is 1 but 2 is also often seen, especially in the US.
Exercise Price of Option (strike price)Choose between
  1. Corresponding to nominal value of common share
  2. Fair market value (or formula value) of one common registered share at time of grant (to be confirmed from tax law point of view)
If you want to implement a tax-ruling to agree with the tax authority on a formula value of the common registered shares upon exercise of the options.
The common practice in seed stage companies is 1. It is also the most employee friendly.

Tax ruling: In order to maximally take advantage of the tax optimization, a tax ruling is recommended. However it can also be done at a later time point (but before the first exercises).
FundingChoose between
  1. Conditional share capital
  2. Authorized share capital
  3. Treasury shares (and if the shares come from specific shareholders such as founders)
The common practice is a conditional share capital.
Termination during Vesting PeriodIf the company should have a repurchase right on vested options in case the employee’s employment is terminated (in good terms).The common practice is to have a repurchase right even though it is rarely exercised.
Termination after Vesting PeriodIf the company should have a repurchase right on vested options if the employee’s employment is terminated (in good terms).The common practice is to have a repurchase right even though it is rarely exercised.

Standard parameters, but good to know

EligibilityWho should be able to receive rewards: Employees, consultants, advisors, members of the board of directors (the “Participants”)
Issue PriceFree of charge
Term of the Plan (Expiration)10 years
Blocking Period for SharesThe shares awarded under the ESOP are subjected to a blocking period (Sperrfrist) of up to 10 years starting at the exercise date. Common practice is 4 - 6 years.
Conditions to Exercise
  • Vesting fulfilled
  • Full payment of exercise price
  • Exercise within option term
  • Accession to then current shareholders’ agreement
  • No material breach of employment relationship
Transferability of OptionsNone, unless in case of death as under the applicable matrimonial property and inheritance laws and the Participant's lawful last will.
Transferability of SharesAccording to shareholders’ agreement.
Anti-Dilution ProtectionThe Participants acknowledge and agree that the Options granted under this Plan are granted without protection against future dilutive effects (e.g. issuance of new shares of the Company).
Tax and Social SecurityIncome tax consequences or social security contributions in connection with participation in the ESOP according to applicable laws.
Governing law and JurisdictionSwiss law, place of domicile of the Company.

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