How to grant stock options to foreign employees

Granting stock options to foreign employees can be an effective way to attract and retain top talent in a global workforce. However, it can be a complex process!

Thankfully, Dinari’s combination of its proprietary legal documents - prepared and reviewed by world-class law firms and backed by a financial guarantee - and tamper-proof ledger technology greatly reduces this complexity. As a result, companies can rest assured that granting stock options to foreign employees is fast, cost-effective and safe.

Below we document the steps that companies should consider when granting options to foreign employees, and how Dinari can help!

1. Consider local laws and regulations: Before granting options (a form of company equity) to foreign employees, it is important to understand the local laws and regulations in the employee's country of residence. Some countries have restrictions on the types of equity compensation that can be offered to employees, and others have specific tax implications for equity compensation. Companies can leverage Dinari's knowledge base to gain insight on the different rules and regulations for equity issuance in over 90 countries, giving you peace of mind when deciding to take your equity global.

2. Choose the right plan: There are several types of equity compensation plans that companies can choose from, including stock option plans, restricted stock unit plans, and phantom stock plans. Each plan has its own advantages and disadvantages, so it is important to choose the one that best suits the needs of the company and the foreign employees. Companies should also ensure that the relevant stock plan is able to issue shares outside the US, and whether the employee would benefit from a stock “sub-plan” specific to issuing equity to that country of residence. Dinari provides its own high-quality stock plan documents - which have been vetted by world-class law firms - so that companies simply have to choose which plan they want, without having to engage costly external legal counsel.

3. Determine the terms of the options: Once the plan has been chosen, it is important to determine the terms of the options. This includes the number of shares, exercise price, the vesting schedule, and the expiration date of the options (in the US, options typically expire ten years after the date they are approved). It is also important to consider the tax implications of the options in the foreign employee's country of residence. Much of the time any information related to the pricing of shares will have been defined by a company's 409a valuation. However, 409a valuations are not accepted nor honored in every country. Thus, companies should ensure that they have the right valuation for their shares in the country that they would like to issue equity to. Companies can directly request these valuations from the Dinari platform so that they can effectively determine the terms of their options/shares for their employees.

4. Document the options: The terms of the options should be documented in a stock option agreement or in a manner set out in the applicable stock plan. Companies should ensure that the employee is able to read and understand the document if it is in English, or should have the agreement translated into a language that the foreign employee can understand. The most important thing is to make certain the employee is aware of the terms of the options. These terms are provided in Dinari’s legal documents and are compliant in both the company’s home country as well as the employee’s country of residence. Dinari’s proprietary tamper-proof ledger technology ensures that all historical transactions and documents are recorded, so that both parties can refer to the terms later on if needed.

5. Provide regular updates: Regular communication and updates are essential to keep employees informed about the status of their options and to ensure that they understand their rights and responsibilities. This can be done through regular company communications, such as newsletters or emails. Even better, the company can use the Dinari platform, which makes these communications seamless!

In conclusion, granting stock options to foreign employees can be a complex process, but with proper planning and attention to local laws and regulations, it can be a valuable tool for attracting and retaining talented employees in a global workforce. As your company considers taking its equity global, Dinari can be your solution to simplifying the process and ensuring compliance throughout.