How to digitize an option agreement

Digitizing a manual option agreement workflow can deliver huge time-savings as the business continues to scale – so how do you do it?

This deep dive looks at the use of option agreements at scaleups, and the benefits of digitizing the contract workflow. Use the navigation below to find out more, or explore our deep dives on other contracts, like NDAs and employment offer letters.

What’s an option agreement? | Who do they affect? | What’s the manual process and why is it painful? | How to digitize option agreements | Useful features | Handy integrations | Learn more

What’s an option agreement?

An option agreement details the terms and conditions that give someone a right (not an obligation) to buy an asset. They are used in many contexts – from property transactions to financial derivatives – but we see them discussed frequently in relation to automation, in the context of the contracts startups and scaleups use to give their employees share options. 

For the business issuing the options, it’s a great way to align incentives with its employees and to give them a stake in the company’s commercial success.

Who do option agreements affect?

Option agreements affect various stakeholders across the business, usually:

  • The legal team, who will own the template, usually with input from external counsel when the employee option pool is changed.

  • The people team, who is often responsible for distributing option agreements to new (or current) employees. This team will work closely with legal to vary option arrangements at scale from time to time – this case study explains how.

  • The CFO, if the business has one, owns the management of the cap table, so they’ll want to monitor option agreements closely.

  • The board of directors focuses on the precise details of ownership, especially when the business is approaching a funding round.

  • Employees are the people being offered the share options. This includes both new joiners and existing employees, who may be granted additional option awards as they progress in the company.

The counterparty to the employee or candidate is usually the corporate legal entity, with the CEO or CFO as the authorized signatory.

What’s the manual process for option agreements?

Even in innovative, tech-driven business, option agreements usually still fall victim to a manual process that involves mountains of paperwork. 

The option agreement template exists as a Word file, and lives on a shared drive or perhaps a team drive owned by HR or the legal team. Someone in the people team downloads and amends this template to create an employee’s contract. Options are an incentive for employees, so most small changes happen within these teams and don’t usually need legal approval. However, senior employees might choose to negotiate their option agreement. 

The Word document bounces between the employee, the people team, legal for sign-off and, in some cases, the leadership team. This back-and-forth creates several versions of the contract, with tracked changes denoting amendments, until the agreement is converted into a PDF (or worse, a hard copy) and signed by both sides. The agreement is then saved in a shared drive. 

The manual option agreement process creates difficulties for various teams. These problems compound as the company continues to scale and increases headcount

Why it’s painful to manage option agreements manually

The manual option agreement process creates difficulties for various teams. These problems compound as the company continues to scale and increases headcount. 

Slower time-to-sign

Jumping between Word, email, PDFs and shared drives can increase time-to-sign, especially when there are several parties reviewing and making changes to the agreement. Chasing documents between systems slows the process of getting the contract signed and makes version control difficult to manage.

Data gets lost

Information on who negotiated or changed what clauses and when is important for improving future transactions. Unfortunately, this information is lost as the contract jumps between multiple systems. It’s hard to preserve contract metadata with a manual process and this means the company misses opportunities to spot and prevent hold-ups. 

Legal’s time is wasted

Although options schemes are complex – and get more complex as companies grow – the contract itself is usually straightforward. Still, the legal team ends up spending valuable time hunting for templates and resolving the same queries on option agreements again and again – a poor use of their time and expertise. 

These challenges often drive businesses to digitize their option agreement workflow. 

With a digitized workflow, legal owns the template and users can self-serve watertight option agreements

How to digitize option agreements

A frictionless, scalable workflow can help legal teams digitize option agreements and empower their people team colleagues to self-serve from a single source of truth.

Create templates and enable self-serve

With a digitized workflow, legal owns the template and users can self-serve watertight option agreements. Juro does this using a Q&A flow, through which users answer a series of natural-language questions to autopopulate an option agreement with key details. 

Collaborate and negotiate in real time

A digitized workflow can supercharge negotiations between the employee and business teams. By keeping the option agreement in your contracts platform, you’ll have an audit trail of changes and a record of negotiation data. And with in-browser negotiation, legal and people teams no longer have to worry about version control – every discussion is kept in a single iteration and both parties are notified of any changes via Slack or email. 

Sign anywhere, at any time

Say goodbye to the print-sign-scan process and save time with native eSignature. Employees can sign securely from anywhere, on any device. Once signed, the option agreement is automatically emailed to all parties, without you needing to lift a finger. 

Gain valuable insights

A digitized option agreement workflow will offer you data insights so you can make the end-to-end contract process more efficient. Use the analytics dashboard to identify hold-ups, check in on what’s changed since the last round of edits, and much more.

Experts break down every stage of the contract lifecycle in the ‘Modern contract handbook’. Get it now, for free.

Useful features

To make the most of a digitized workflow, look for the following features in a contracts collaboration platform:

  • Q&A flow. With a series of simple questions, this can enable people teams to self-serve option agreements in minutes – and reduce legal involvement without risk.

  • Approvals. An approval workflow ensures legal and leadership teams retain oversight of share option awards.

  • Mass generation. Venture-backed companies occasionally vary options as they scale, either giving everyone an additional equity award or changing exercise rights. Being able to do this in bulk, instead of individually, can save big chunks of time.

  • Mass signing. Similarly, the CEO or CFO doesn’t want to work through each option agreement one by one when signing. With a contract collaboration platform like Juro, a mass actions feature allows the CEO or CFO to generate, approve and sign dozens or even hundreds of contracts at a time.

  • Date reminders. Use the renewal reminders feature to alert you when key vesting dates approach, so teams can plan ahead with ease

  • Table views and custom dashboards. Contract owners can filter option agreements by various data points in their custom dashboard, like number of options, vesting date, signing status, and so on.

Handy integrations

  • Slack. Slack notifications are a great way to offer stakeholders overview on option agreements and their progress.

  • Google Drive. Automatically saving key documents about the cap table is invaluable when it comes to due diligence and data rooms for future funding rounds.

  • HR systems. Option agreements are part of ongoing incentive management - it’s useful if these documents integrate with the systems that people teams use every day

Dynamic, digital option agreements

Is managing routine contracts at scale a challenge for your SaaS company or marketplace? Is your business growing so fast that the contract workflow is out of control, with friction pre-signature and a lack of visibility post-signature?

If so, try Juro for free and see if you could benefit from a contract collaboration platform that enables businesses to agree and manage contracts all in one unified workspace.

 

Topics: Option agreement

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