This article will provide insight and step-by-step instructions for the "Grant Shares or Options Under Stock Incentive Plan" and the "Grant Shares Outside of Stock Incentive Plan" workflows in Shoobx.
Granting equity to employees, consultants, advisors, and others is fully automated in Shoobx. Shoobx has an automated workflow to set up a grant with just a few key pieces of information—your company's fair market value (FMV), recipient name, number of shares, and vesting information, if applicable. You can learn more about the different types of grants available in our blog post.
If you would like instructions on how to upload granted shares, follow the steps below but select "Upload" on the first screen, instead of "Create." If you are looking for steps on how to upload single custom grant document to be sent out for signature through Shoobx, see here. Last, be sure to select the correct Grant Shares workflow when you begin -- either Under the Stock Incentive Plan, or Outside of the Stock Incentive Plan.
Below you will find information about each step in the Grant Shares workflows (in order):
- Getting Started
- Select Stock Incentive Plan
- Define Source for Fair Market Value (FMV)
- List Grant Recipients
- Constraints Check
- Signature Collection
- Wait For Grant Acceptance
- Frequently Asked Questions
Both workflows are in the Equity section of workflows on the Available Company Workflows page.
Sometimes, multiple people at a company may be running the Grant Shares workflow(s) simultaneously. If this is the case, a warning will appear on the first page of the workflow which reads "Please be aware that there are other Grant Shares or Options workflows currently underway." This ensures that the company doesn't unintentionally create duplicate grants.
If you plan to grant shares or options under a Stock Incentive Plan and you do not have a SIP, you will need to establish a stock incentive plan for your company in Shoobx prior to utilizing the workflow.
If Granting under the Stock Incentive Plan, Select the Plan
Only the "Grant Shares or Options Under Stock Incentive Plan" workflow includes this step. Choose your SIP from the list, then click "continue."
Define Source for Fair Market Value (FMV)
The board must establish the Fair Market Value (FMV) to set an exercise price for stock options (the price the option holder will pay when they purchase, or “exercise,” their stock). FMV can be determined by a 409A Valuation Report, or in a board report (typically drafted by the company’s lawyer or a financially savvy board member) that lists all of the factors that the board considered in establishing the FMV.
A company should obtain a valuation every 12 months, or following significant company events that result in material changes, such as a financing transaction, or a strategic partnership.
Choose the path that is a better fit for you:
- Request a 409A Report - A valuation expert prepares a detailed 409A Valuation Report, and the board adopts the FMV established in the report. Check out our product page to learn more about getting a 409A Valuation Report through Shoobx. Certain Shoobx clients have the cost of the 409A Valuation built into their annual subscription fee.
If you choose this option you will follow the steps described in the 409A Valuation Report (FMV) article. When you have completed the process you can return to the grant shares workflow.
- Use Existing Report - If your company completed a 409A or other analysis within the last 12 months and your company hasn't undergone any substantive changes, you can use the FMV established in that report and upload it in the next step. If the board has done an analysis in the last 12 months, you can use the FMV defined in the resolution and upload the report of the analysis during the workflow.
Set Valuation Method
Indicate whether you are using a 409A Valuation or if the board is setting the FMV. If you are using a board analysis and not using a 409A Valuation Report, uncheck the box.
Enter Details About FMV
Pay careful attention to the Valuation Date for the FMV. Be sure to enter the valuation date for the FMV as listed in the 409A Valuation Report or board report, not the date of the report itself. Shoobx uses this information to determine when your FMV is out of date and needs to be recalculated.
List Grant Recipients
You can edit the details of the listed grant(s) by pressing the three bar button (or hamburger button) to the right of the listed grant and clicking "Edit" from the drop down. You can also remove this equity promise, but please note that during your next "Grant Shares" flow you will not be reminded of this promise. (Note: this promise will still be visible in your cap table export.)
You can add a new grant by pressing the "Add Grant" button and entering the necessary information.
If needed, you can create a new user. Shoobx will email the grantee inviting them to set up an account. You will want to enter the grant information and then the date the new grantee began working with the company. (You will note that Shoobx automatically checks whether a "Termination" workflow is in progress for the employee. In some cases, the step is automatically bypassed if the user was just created during this flow.) The new grantee will then be added to the list once you select "Continue."
Shoobx will run calculations to ensure your scheduled grants comply with certain requirements of your plan and the Internal Revenue code. You may want to also discuss the results with your attorney.
Use the arrows for more details about the results of the constraint check. If a grant is outside of the constraints, Shoobx will display a message to explain what needs to be corrected. In the example below, Shoobx allows you to proceed with the grant for Joy, but has flagged that Joy is not registered as an employee in Shoobx yet (and is being granted an ISO, which is for employees only).
The grant agreements and FMV resolution will now be ready for approval. While you were progressing through the workflow, Shoobx automatically generated the new resolutions for approval by your governance bodies. At this point, you will select your method of approval. Grants can be approved via a written consent or a board meeting vote.
Shoobx can generate the Board Consent Approval directly during this flow. The first option creates a Written Consent containing the resolutions required for the workflow. The signatures of your Board Members, to approve this action, will be requested as part of this workflow. You will then be brought directly to the "Checkpoint" step and shall note a Board Approval document displayed on the screen.
The second option is to upload a signed approval instead by selecting "Rely on Previously Executed Board Approval Document." This option will allow you to select a previously executed Board approval document to approve this specific action. This document can be selected from your Data Room or uploaded.
Lastly, if you prefer to select the third "Use Other Method of Approval" option, you will be able to queue the resolutions from this process for approval through a separate Board workflow: "Record Board Meeting Minutes" or "New Board Consent." Using this method allows you to bundle the resolutions from this workflow along with resolutions from other workflows or even custom resolutions your attorney may need to include. Your current process will be blocked until these resolutions are approved by your Board Members. Choosing this option will direct you to the "Checkpoint" step in the workflow (there is no Board Approval document available on this screen).
Review the documents carefully. When you are satisfied, click "Continue." Once you select "Continue," documents will be released for signature and will not be available for modification.
Representative Signature: Grants
The next step in the flow will either: collect signatures from the Board for grant approval and then collect representative signatures, or will collect representative signatures if the Board Consent is not immediately being generated through Shoobx. Once Director signatures have been acquired (if applicable), representatives at the company will be asked for their signature.
Wait for Grant Acceptance
Once all company representatives have signed, Shoobx will notify the grantees that their grants agreements are awaiting their signature.
If you have a grantee that has decided to accept their grant outside of Shoobx, you can always upload their signature page into the system. Likewise, if you have a grantee that has decided not to accept their grant, you can always discontinue the signature process (please note that you'll want to first discontinue the signature process before running the "Cancel Grant" workflow if you'd like to remove this grant from the cap table!).
So that you know, once grants are approved, recipients accept their grants right in Shoobx. For the company this means no danger of lost paperwork. For the grantees it means full and easy access to their electronic stock certificate and grant-related documents. Every share or option holder in your company will have their own My Equity area where they can see their vesting status, exercise their options, and even prepare their 83(b) filing.
Frequently Asked Questions
If I've already input my Fair Market Value in a previous Grant Shares Workflow, will Shoobx remember that and repopulate it?
If you run the "Grant Shares" workflow, and you input a 409A valuation, the next time you run the "Grant Shares" workflow, Shoobx will ask you if you would like to "Reuse Existing 409A?" You can select to do so by checking the box on the screen.
If you decide not to use it, you will have an opportunity to specify how you will establish fair market valuation for these grants. This will allow you to skip re-entering information in the "Define Source for Fair Market Valuation" screen, the "Set Valuation Method" screen, and the "Enter 409A Valuation Details" screen.
If you run the "Grant Shares" workflow and you use a Board Resolution to set the fair market valuation, Shoobx will not allow this shortcut. You will have to re-enter the fair market valuation details on the "Define Source for Fair Market Valuation" screen, the "Set Valuation Method" screen, and the "Enter 409A Valuation Details" screen every time you run the Grant Shares workflow.
I want to grant shares to someone in exchange for a service they performed for me and/or the company. How do I do that?
You can indicate that the shares were granted in exchange for service, or any alternative consideration, during the Checkpoint step of the Grant Shares workflow. These are the steps you'll want to take:
- Click the pen and paper icon next to the grant document.
- Click into the Introduction, and then check the box that says "Payment by Alternative Consideration.
- A dropdown menu will appear. You can choose whether the shares were granted in exchange for (1) IP, (2) Services Rendered, or (3) Custom consideration.
- Be sure to click Save.
Can I use Shoobx to grant shares below Fair Market Value?
Yes! Feel free to check out our article with the steps on how to do so, here.
If you have any questions that are not addressed in this article let us know by emailing firstname.lastname@example.org!