Share buyback: Should you accept a buyback offer for your shares? Here's how to evaluate

This series of articles explains how restricted stock, stock options, cash plans and phantom stock really work for closely held companies, and what their real value is for the company and the employee.

Equity Plans — Stock Options and Restricted Stock 3. Stock Option Plans 4.

Restricted Stock Plans 5. Cash Plans, Phantom Stock Plans and Stock Appreciation Rights 7. Summary and Plan of Action.

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In the previous articles 3 — Stock Option Plans and 4 — Restricted Stock Plans , I introduced stock option plans and restricted stock plans. In that article I introduced ten basic concepts for all equity plans, including restricted stock plans.

You should understand the ten basic concepts before moving on to this article. The problem is this: The employee becomes a minority shareholder who no longer has an everyday stake in the company.

Remember from article 2, Equity Plans — Stock Options and Restricted Stock the essential nature of all shareholders — they are a pain.

The situation is worse if the employee leaves the company on bad terms. The buy back right would apply when the employee leaves the company for any reason whatsoever.

Form of Option Exercise and Repurchase Agreements

You have two choices here: Assuming that the company will grow and increase in value, the original purchase price should be lower than FMV at the time of buy-back.

Which price do you pay?

In brief, you pay original purchase price for unvested stock and FMV for vested stock. The bottom line is that when the employee leaves, he loses all his shares.

But you pay him a fair price for the shares. Hence you return the money if any the employee gave you for unvested stock; and you pay the employee FMV for his vested stock. Note that your documents should give your board of directors the exclusive right to determine FMV. You should hire an attorney to help you with your stock option plan or restricted stock plan.

If you want to read more try my main page, Business Lawyer. From there you can link to other pages and articles of interest. Matt Dickstein Business Attorney Making legal matters easy and economical for your business. Business Law Attorney for Businesses, Corporations, LLCs.

Buyback

The articles in the series are: Shameless Plug You should hire an attorney to help you with your stock option plan or restricted stock plan. Call me to schedule a legal consultation: Non-Competition Agreements at mph Can a Former Employee Steal Your Customers?

Stealing Employees- Can a Former Employee Solicit Away your Employees? Understanding Commercial Leases Common Area Maintenance CAM in a Commercial Lease Commercial Lease Terms - Advanced.

Overview Equity Plans - Stock Options and Restricted Stock Stock Option Plans Company Buy-Back and Repurchase of Stock Options and Restricted Stock Cash Plans, Phantom Stock Plans and Stock Appreciation Rights Summary and Plan of Action Early Exercise for Your Company's Plan.

Classifying a Worker as Employee or Contractor Terminating Employment: Fire the Bum Joint Ventures between Businesses How to Structure a New Business Venture Calendar your Deadlines Office Sharing Agreements. Matt Dickstein, Business Attorney - Stevenson Place, Fremont CA mattdickstein hotmail. Business and Corporate LLC Lawyer Attorney for Professional Practices Franchise Attorney in California Newsletters Sitemap and Legal Articles Library.

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