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CalAttorney2, Attorney
Category: Business Law
Satisfied Customers: 10215
Experience:  I am a businesses law attorney, with experience advising and representing owners and investors.
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Our company would like to get a few issues approved through

Customer Question

Our company would like to get a few issues approved through a board consent, listed below. It is a Delaware corporation.1) Extend the stock exercise period to 12 months after the termination of employment.
2) Grant stock options to employees and determine the stock price for the grant of those options through the board consent.
3) Authorize a loan to 2 employees so that they may exercise their stock options early.Are these actions appropriate for a board consent and for the company generally?Also, for the loans, should the terms be standard arms-length in terms of interest, or is no interest okay? Also, what do you think of the term of 5 years? Any other thoughts on these loans?
Submitted: 27 days ago.
Category: Business Law
Expert:  CalAttorney2 replied 26 days ago.

Hello, My name is ***** ***** I will assist you today. Please give me a few minutes to write a response and identify any additional resources for you.

Expert:  CalAttorney2 replied 26 days ago.

Dear Customer,

Thank you for using our forum. Unfortunately, these questions really do require you to meet with corporate counsel and get a formal opinion - your board and your corporation should not rely on the "general information" that I (or any other) attorney or expert can provide you online to answer these particular questions.

Let me elaborate on why these questions require an attorney, and I will give you some more information on them as well as some of the law in DE regarding stock options for employees.

-Yes it is legal to do these things (at least in part):


-Stock option grants are probably the leading cause of litigation against corporations (most commonly as derivative litigation brought by shareholders, and as enforcement action brought against publicly traded companies).

-Stock options are easily manipulated (both to enhance their value, and to over inflate their worth) - making them both especially lucrative for employees, and targets for shareholders that feel employees are being unfairly compensated (even if the compensation is fairly valued).

-Board issued stock dilutes shareholder value (by its nature shares issued to employees will dilute shares already issued - this creates a conflict for the board)

-If you are lending money to employees to purchase shares - the shareholders are loaning money to dilute their own worth (so they are paying twice)

-All of this does not mean you cannot do it - it just means this is a significantly risky area - you should do so only after consulting with counsel and receiving a formal opinion.

This article here discusses the issues in detail: (Backdating may not be an issue in your scenario, but the other topics match your concerns and there are discussions of the relevant portions of the DE corporate code).

So, getting a corporate counsel formal opinion to "cover your back end" as a corporate board is a a very small cost to cover a very big liability.