Granting shares below fair market value is uncommon and should only be done in consultation with your attorney.
This article goes over the two parts of granting shares below Fair Market Value. The first part requires a user to make changes in their company's Administration settings, while the second part entails running the "Grant Shares" workflow. You should note that this only applies to RSAs, not to options (ISOs or NQOs). Please click on the bullet point below for information about each step in the two-part process (note that they are in order):
- Changing Settings In Admin
- Grant Shares
- Frequently Asked Questions
Changing Administration Settings For Your Company
Because it is so rare for companies to grant shares below Fair Market Value, you will have to switch some admin settings before Shoobx will allow you to do this. To begin, click into the "Administration" lens in Shoobx which is located beneath the "Company" or "My Shoobx" button in the upper right-hand corner of your toolbar. (Please note that full company access users will be able to change these settings. If you believe that your permissions should be expanded, consult with the appropriate individual at your company and direct them to these instructions.)
Once you are in the Administration lens, you will want to identify the "Workflow Administration" button (inside the "General Settings" module).
After clicking this button, scroll down to locate the "Equity" heading and select the "Grant Shares or Options" workflow.
On this page, you'll want to uncheck the box next to "Only allow grants under the plan to be priced at Fair Market Value." (Don't forget to scroll to the bottom and select "Save," or this change will not be captured.)
Granting Shares: Let's Get Started
After you've finished switching these admin settings; when you run the "Grant Shares" workflow, you will see a new option to grant shares below FMV. (Make sure you run the "Grant Shares" workflow from scratch. Any previously run workflows will not reflect these changes, so it must be a new workflow.)
Continuing through the workflow will mirror the classic "Grant Shares" process. This means that you will be invited to select the Stock Incentive Plan from which the restricted stock shall be issued (if it is a grant under the plan).
List Grant Recipients
Once you complete the SIP step, you will be able to list the grant recipients for those priced at something other than Fair Market Value. You can do so by selecting "Add Grant" and specifying the details of the grant.
Shoobx allows you to set the per-share price during the "Define Grant" details step. (Note that the "Set Grantee Start Date" will be automatically skipped if this information is not applicable.)
The rest of the workflow will mirror that of the "Grant Shares" flow, as mentioned above. However, if you decide to have Shoobx create a Board Consent for approval during this workflow, there are a few differences which are described below.
If you continue in the workflow to the "Checkpoint," and you have selected that you would like Shoobx to generate the approval documentation for the grant, you'll see that Shoobx has drafted a Board Consent in the list of documents.
By selecting the "Edit Resolution" button to the right of the listed "Board Consent," you'll be able to note that Shoobx has drafted a resolution that takes into consideration the fact that the grant is below FMV.
Frequently Asked Questions
Can I Set the Purchase Price at $0 in the Shoobx system?
While it depends on your particular circumstances, Shoobx supports the automated granting of shares at a $0 purchase price. At the "Define Distribution" step, you will be able to set the price per share regardless of your par value. (Learn more about par value and how it is determined in our blog post, "Par Value: More Than Zero.")
Note that, if you are looking to grant shares in exchange for contributed intellectual property or services, rather than cash, this is not the recommended method for doing so. If this is what you are hoping to accomplish, you will want to upload documentation explaining this transaction at the "Upload Proof Of Payment" step and you will want to speak with your attorney regarding this documentation).