Glossary

Option Pool

Definition

An option pool refers to a portion of a company's shares or equity that is reserved for future distribution to employees, consultants, or other individuals as part of their compensation or incentive plans.

Who is eligible for shares from the Option Pool?

The individuals who may receive shares from the option pool include:

  • Employees: Companies often use the option pool to grant stock options or restricted stock units (RSUs) to employees as part of their compensation packages. This helps align the interests of employees with the company's success and incentivizes them to contribute to its growth.
  • Consultants: In addition to employees, consultants who provide valuable services to the company may also be eligible to receive shares from the option pool. This can be a way to reward consultants for their contributions and encourage ongoing collaboration.
  • Other individuals: Depending on the company's specific circumstances and policies, other individuals such as advisors, board members, or strategic partners may also be eligible to receive shares from the option pool.

Why is an Option Pool important?

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Having an option pool is crucial for startups and growing companies as it allows them to attract and retain talented individuals by offering them a stake in the company's success. By allocating a portion of the company's shares or equity to an option pool, the company can grant stock options or other equity-based incentives to employees and consultants.

How does an Option Pool work?

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When creating an option pool, a company sets aside a specific number or percentage of its shares or equity. These shares are then reserved for future issuance to eligible individuals. The size of the option pool is typically determined by factors such as the company's stage of growth, industry norms, and the anticipated need for employee incentives.

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