The following Share Incentives guidance note Produced in partnership with Michael J. Collins of Gibson, Dunn & Crutcher (Washington DC) provides comprehensive and up to date legal information covering:
US privately held companies often like to incentivise their executives and other key employees through equity compensation grants, in order to better align their interests with those of the company's equity holders. In many respects, equity compensation plans for US privately held companies resemble those of public companies (see Practice Note: Designing a US public company equity compensation plan). However, a number of significant differences exist due primarily to the illiquidity of the stock, including a new opportunity to allow certain equity grantees to defer taxation for up to five years under US section 83(i) of the Internal Revenue Code (IRC) pursuant to 2017 tax reform legislation (section 83(i)).
This Practice Note is organised in the following sections:
Plan drafting, and
Section 83(i) eligible plans
The only two special US tax rules that apply to equity awards of privately held companies concern tax-favoured incentive stock options (ISOs) and the new section 83(i) election available for certain award recipients under eligible broad-based equity plans discussed later in this Practice Note.
To be eligible for ISO status under IRC, s 422, the awards must be granted under a plan that:
is approved by the company shareholders within the 12 months before or after plan adoption
provides for the grant of ISO awards that comply with the requirements
**Trials are provided to all LexisPSL and LexisLibrary content, excluding Practice Compliance, Practice Management and Risk and Compliance, subscription packages are tailored to your specific needs. To discuss trialling these LexisPSL services please email customer service via our online form. Free trials are only available to individuals based in the UK. We may terminate this trial at any time or decide not to give a trial, for any reason. Trial includes one question to LexisAsk during the length of the trial.
To view the latest version of this document and thousands of others like it, sign-in to LexisPSL or register for a free trial.
Existing user? Sign-in
Take a free trial
0330 161 1234
To view our latest legal guidance content,sign-in to Lexis®PSL or register for a free trial.