The idea behind giving employees stock is a sound one. Employees who are owners may be more invested in the business’s success. They may feel more appreciated. It could give them a sense of pride, ownership or purpose beyond anything that they would feel from a simple salary.
These are the main reasons I hear from employers who wish to create an employee stock plan.
For a myriad of business reasons, I prefer not to share stocks with employees. I prefer an employee profit-sharing plan that does not involve equity.
But I understand that many business owners may feel like a stock plan is right for their employees.
So you may be wondering, if I tell my employees that they are entitled to stock options in a letter, memo or at a meeting, is that legal? No. Watch to learn more.
I offered stock options to my employees in a memo. Is that OK?
That is not a good idea. Employee stock plans and stock option grants are complicated.
First of all, stock grants may create taxable events that impact you as the employer.
Second, stocks and options create duties by the majority stockholders to the minority stockholders under state laws that you may not anticipate.
Third, such a memo may create earned wages and must comply with wage laws.
Fourth, federal securities regulate promises and statements regarding stocks.
In short, employee stock plans create a variety of legal issues that you must understand before you start handing out shares and options.
There are better alternatives if you wish to give your employees a profit-incentive.
For example, you can have a 401(k) set up to include profit sharing or you can set up a bonus program.
If you are considering benefits and stocks for your employees, contact us to learn about legal compliance. Get our white paper Reduce Your Per Employee Annual Legal Compliance Costs. Or contact us at 800-449-8992 or [email protected].