A Stock Option program is an excellent tool that companies, including Startups, can use to retain talent and stimulate employee performance. The program allows employees to acquire shares in the company for a pre-established value after certain goals are achieved.
To ensure that the program in Brazil does not become difficult to implement, and that the entry of new partners may end up harming the Brazilian company, it is essential that some precautions be taken:
1. Criteria for Executing the Option: It is essential that the Stock Option program establishes criteria to allow the employee to acquire the share. For example, a vesting period, the achievement of goals, and even the completion of a certain round of investor raising can be used.
2. Option Pool: Creating an Option Pool, a percentage of the share capital reserved to be used in the offering of Stock Option, already establishing in advance the origin of the quotas/shares that will be offered, avoids surprises, organizes the capital and helps in the fluidity of the exercise of the Stock Option right.
3. Cap Table: The Cap Table must clearly reflect the distribution of shares among founders, investors and employees who adhere to the Stock Option. A poorly planned Cap Table structure generates uncertainty about the control of the company and future profit distributions, even its sale, which can discourage investors. On the other hand, a well-structured Cap Table demonstrates that the company has control over its governance and is organized to receive new investments.
4. Business Management: It is important for the company to understand the influence that the employee will or will not have on the management of the company after joining the company. In the case of limited liability companies, the new partner will have the right to vote on company decisions. In the case of corporations, it is possible to offer preferred shares, which offer priority in receiving dividends and in the event of liquidation, but do not grant voting rights, or common shares, which do not have the priority of the other group, but grant the right to vote and share in profits.
5. Shareholders’ Agreement: Providing in the Stock Option contract that, when exercising the right, the employee must join to the company’s shareholders’ agreement is another important protection to safeguard the company’s governance when new partners came, who, even if they are voting partners, must respect the parameters established in the shareholders’ agreement, considering that Brazilian Courts use to respect what is provided for in the shareholders’ agreement.
The construction of the Stock Option program in Brazil must be done in a personalized manner and attentive to the interests of the company, especially in cases where there is an interest in investors also being part of the business. It is always important to consider the future impacts of the entry of these partners/collaborators, ensuring the company’s governance, minimizing corporate risks and protecting the interests of the founders.
