Equity incentive plan

curl -X POST https://dealroom.todo.law/api/v1/agent/contracts \
  -H "Authorization: Bearer drk_YOUR_KEY" \
  -H "Content-Type: application/json" \
  -H "Idempotency-Key: $(uuidgen)" \
  -d '{
    "contractType": "EQUITY_INCENTIVE",
    "governingLaw": "ENGLAND_WALES",
    "language": "en",
    "party": {
      "legalName": "Your company"
    },
    "counterparty": {
      "legalName": "The other company"
    },
    "terms": {
      "plan-name": "<plan-name>"
    },
    "inline": "md"
  }'

What it is and when it is used

An equity incentive plan is the document under which a company sets aside part of its equity and grants awards to the people it wants to reward and retain. Instead of agreeing equity terms one person at a time, the company sets the rules once: the type of award, the size of the pool, how awards vest, what happens when someone leaves and what happens when the company is sold.

The Dealroom skill produces the plan together with the individual grant terms for one named participant. Awards may go to employees, directors, consultants and other service providers, as the plan administrator decides. If the company prefers a cash bonus linked to share value rather than real equity, the phantom shares plan is the more suitable document.

Who signs it and in which role

Two parties appear:

• The Company, which adopts the plan and grants the award.
• The Participant, the person who receives the award.

The parties fill in the plan name (required) and, optionally, the total number of shares authorised, the pool as a percentage of fully diluted capital (10% by default), the exercise price per share, the vesting period (48 months by default), the cliff (12 months by default) and the post-termination exercise window (90 days by default).

Key clauses

The skill negotiates 10 clauses. The plan type and the share pool are required; the other eight are optional.

Plan type

Incentive stock options (US tax-advantaged, employees only); non-qualified stock options, which can go to employees, consultants and directors; restricted stock units, a promise to deliver shares on vesting with no exercise price; share appreciation rights, paying the increase in value in cash or shares; EMI options for qualifying UK small and medium companies; CSOP options for UK companies above the EMI limits; and share delivery under the Spanish startup regime for companies certified by ENISA, with a yearly income tax exemption of up to 50,000 euros and deferral of the excess.

Share pool size

A fixed number of shares, a percentage of fully diluted capital that adjusts as the company issues shares, or an evergreen pool that grows automatically each year.

Exercise price

Fair market value at grant, set by an independent valuation; a discount to that value; or the nominal value of the share.

Vesting schedule

Four years with a one-year cliff, three years of monthly vesting with no cliff, or vesting tied to milestones such as revenue targets, product launches or funding events.

Acceleration events

Full acceleration on a change of control alone (single trigger); acceleration only if a change of control is followed within 12 months by termination without cause or resignation for good reason (double trigger); or no acceleration.

Post-termination exercise window

90 days after leaving, one year, or a window that grows with tenure (90 days under two years of service, one year between two and five, five years after that).

Transferability

No transfer at all; transfer only to close family, family trusts or estate planning vehicles; or transfer of vested shares subject to the company's right of first refusal.

Clawback provisions

No clawback once equity has vested; repurchase at cost on termination for cause; good leaver / bad leaver treatment, under which good leavers keep vested equity and bad leavers sell it back at the lower of cost and fair value; or a clawback limited to fraud, wilful misconduct and awards based on materially wrong accounts.

Change of control treatment

All unvested awards vest on the change of control; the acquirer assumes the awards or replaces them with equivalent awards on the same vesting schedule; or the board decides case by case.

Plan administration

The full board, a compensation committee of independent directors, or the board with routine grant authority delegated to the chief executive for non-executive grants.

The standard terms also cover eligibility, securities law compliance, the participant's responsibility for tax, the absence of any guarantee of value, forfeiture of unvested awards on leaving, restrictive legends, and a rule that no amendment may materially harm an outstanding award without the participant's written consent.

What the two sides usually negotiate

The company generally prefers a fixed pool, a price at fair market value, milestone vesting, no acceleration, a short exercise window, no transfers, a clawback on cause and discretion for the board on a sale. The participant generally prefers RSUs or tax-advantaged options, a discounted or nominal price, vesting without a cliff, single-trigger acceleration, a long exercise window and no clawback.

When the two sides disagree, Dealroom proposes the balanced positions in the skill:

• Plan type: non-qualified stock options.
• Pool: a percentage of fully diluted capital.
• Price: fair market value.
• Vesting: four years with a one-year cliff.
• Acceleration: double trigger.
• Exercise window: one year.
• Transfers: limited family transfers or a company right of first refusal.
• Clawback: limited to fraud, misconduct and restated accounts.
• Administration: the board, a committee or delegated authority, all close to neutral.

On change of control there is no neutral option; assumption or substitution by the acquirer is closest to the middle and leans towards the company.

Jurisdictions and languages Dealroom supports for it

Dealroom drafts the plan under the law of California, of England and Wales and of Spain, in English or Spanish. Options that do not exist in a jurisdiction are blocked there.

• California: incentive stock options, non-qualified options, RSUs and SARs. The plan addresses the federal rules for incentive stock options, section 409A with an independent valuation at least once a year, the state securities exemption for compensatory plans and the 30-day deadline for a section 83(b) election. Clawback on cause and good leaver / bad leaver are blocked, and the plan states that no term operates as a restraint on lawful work.
• England and Wales: non-qualified options, RSUs, SARs, EMI and CSOP. The plan covers allotment authority and pre-emption under the Companies Act 2006, the EMI qualifying conditions and limits as of July 2026, the deadline for notifying grants to HMRC, National Insurance on non-advantaged exercises and the 90-day EMI window after a disqualifying event.
• Spain: non-qualified options, RSUs, SARs and the startup share regime. New participaciones are issued through a capital increase approved by the general meeting with pre-emption excluded or waived; the evergreen pool is blocked because a limited company cannot delegate future capital increases; and any transfer on exercise follows the statutory transfer rules, including a public document. Disputes go to the courts of the company's registered office.

Common mistakes

• Choosing an instrument that does not exist in the jurisdiction. US incentive stock options cannot be granted by an English or Spanish company, and EMI and CSOP are UK regimes only.
• Granting options below fair value without a valuation. In the United States this can trigger additional tax under section 409A; in Spain shares may not be issued below nominal value.
• Assuming a long exercise window is free. Beyond three months incentive stock options lose their status, and EMI relief ends 90 days after a disqualifying event.
• Using conduct-based forfeiture in California. It is void there; use the clawback limited to fraud and restated accounts.
• Treating the Spanish exemption as automatic. It applies only to certified startups, and the exemption from income tax does not automatically extend to social security contributions.
• Planning an evergreen pool for a Spanish limited company. Each increase needs a resolution of the general meeting.