Can I grant stock options to employees in another state or another country?
Stock planEquityCompliance
Yes. One plan can cover people anywhere, but every grant is an offer of securities, so the company needs an exemption from federal registration and from the securities law of the state where each recipient lives. Federally, that is Rule 701, which lets a private company issue stock and options to its employees, directors, officers, consultants and advisors under a written compensatory plan without registering them. The state layer is a filing in some states and nothing in others, and the country layer, for anyone outside the US, is a separate question each time.
The federal limits
Rule 701 caps what a company can issue under it in any twelve months at the greatest of $1,000,000, 15 percent of its total assets, or 15 percent of the outstanding shares of the class being granted. If grants exceed $10 million in a twelve-month period, the company has to give recipients a disclosure package with financial statements and risk factors before the sale, which is a later-stage problem rather than a formation one.
The state layer
Most states exempt grants that qualify under Rule 701 automatically or on a simple notice. California is the one that trips people. Its exemption for compensatory plans, section 25102(o) of the Corporations Code, requires a notice to the state no later than 30 days after the first issuance of a security under the plan. File late and the exemption survives only if the company files within 15 business days of discovering the miss, or of a demand from the state, and pays a fee equal to the maximum it would have paid to qualify the offering outright. Whoever grants to a California resident, wherever the company sits, should calendar that notice.
Outside the US
A grant to someone in another country has to comply with that country's securities and tax rules, and the US exemptions say nothing about those. Some countries have an employee share scheme exemption with a filing; some tax the option at grant rather than at exercise; some require a local sub-plan to get favorable treatment. Find out before the grant; one that was unlawful where the recipient lives is hard to unwind.
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Written by the lawyers who built Arabella. This is legal information, not legal advice for your situation, and reading it does not make us your lawyers. For a real dispute or a high-stakes decision, talk to a licensed attorney. More questions.