How to simplify an option agreement

Find out how simplifying option agreements can improve the employee experience and get signatures on the dotted line faster.

This deep dive looks at what an option agreement is, who the process affects and why teams decide to simplify it. Use the navigation below to find out more or explore our other contract deep dives, like employment offer letters and NDAs.

What’s an option agreement? | Who do they affect? | Why simplify option agreements? | How to simplify the option agreements process | How to simplify the option agreements content | Useful features | Learn more

What’s an option agreement?

An option agreement outlines the terms and conditions that give a party a right (not an obligation) to buy an asset. The term ‘option agreement’ is used in many contexts – from financial derivatives to property transactions – but we’re referring to option agreements in the context of contracts used by startups and scaleups to offer their employees share options.

For the business, issuing these options is a great way to align business and employee incentives. Options give employees a stake in the company’s success and allow the business to distribute equity in a controlled way. A business might want its employees to have a degree of ownership, for all sorts of reasons, but probably wants to prevent them from having voting rights or exercising their options short-term. Options tend to come with vesting cliffs for this reason. Find out more in this venture capital jargon cheat sheet.

Who do option agreements affect?

Option agreements affect different stakeholders in the business, the most common including: 

  • The legal team, who works with external counsel when the employee option pool is created or changed. This team owns the contract templates.

  • The people team, who is responsible for distributing option agreements to both existing and new employees. They usually collaborate with legal to make changes to option agreements as the business scales.

  • The CFO, who owns management of the cap table. The CFO will want to monitor agreements closely. If the business doesn’t have a CFO, then leadership teams take on this responsibility.

  • The board of directors, who are interested in the specific details of ownership – especially when there’s a funding round on the horizon.

  • New joiners and existing employees, who are sent option agreements. New joiners get theirs when they join the business; existing employees might be granted additional option awards as they progress with the business.

With no automated alternative, and an unnecessarily complicated workflow, the end-to-end process can lead to friction between teams

Why simplify option agreements?

Your end-to-end agreement process will be faster

Many businesses still rely on Word and hard copy contracts. With no automated alternative, and an unnecessarily complicated workflow, the end-to-end process is time-consuming and can cause friction. The employee might find the process frustrating, especially if the content of the option agreement is difficult to understand. This slows down time-to-sign and can lead to a backlog within the people team. A contract collaboration platform that does the heavy-lifting can make a huge difference – especially as the company continues to grow and option agreements need to be managed at scale. 

You can maintain version control

Option agreements are created in Word; negotiated through emails, meetings, and Slack discussions; saved as PDFs; and either agreed via an eSignature tool or printed, signed and scanned. This complex process usually results in multiple versions of the same document doing the rounds, with no understanding of revisions and suggestions being made. This can confuse, frustrate and alienate teams – not ideal for employee retention – and it can be detrimental to your brand in the long run. By using a contracts platform as the single source of truth, you can create dynamic, digital contracts made up of searchable, structured data, helping teams manage version control. 

You can have total workflow visibility

Creating and negotiating option agreements across Word documents and PDFs leads to lost data and visibility as changes are made and new versions created, making it impossible for people and talent teams to identify and overcome hold-ups. Post-signature, it is difficult to maintain an open channel of communication with the employee when signed agreements are stored separately – on a shared drive, as a hard copy in a filing cabinet or on someone’s personal desktop. This can lead to misunderstandings and the employee may disengage altogether. By bringing the entire workflow into a contract collaboration platform you can give teams full visibility and keep everyone in the loop and prevent miscommunication with Slack and email notifications. 

Get the ‘Modern contract handbook’ and discover what end-to-end contract collaboration looks like for a modern business.

How to simplify the option agreements process

A contract collaboration platform can resolve the challenges you face with a complicated, manual process. Look for a solution that lets you:

Handle all your contracts, all in one place

Scaleups often want to simplify option agreements by eliminating the back-and-forth process and completing everything in a single source of truth. Handling the contract lifecycle in a unified workspace can massively impact your time and efficiency savings – and as the business continues to scale, that bonus time will be invaluable! Make sure your platform allows you to create, negotiate, agree, sign, store and track the option agreement, and say goodbye to multiple systems for good. 

A searchable database

Your solution needs a native editor that allows you to create option agreements built on structured data that you can search. With a contract collaboration platform that stores all your option agreements in one structured repository, it’s never been easier to find what you’re looking for. Search, filter and sort in seconds to keep track of contracts and access old agreements easily.

Identify the most important details in your option agreements and put them front and centre to secure signatures faster

How to simplify the option agreements content

Simplifying your option agreement content is really about legal design thinking and putting your end user first. You want to create a document that helps you deliver a positive experience to your new and existing employees: are your contracts well-designed, easy to understand and engaging so that people actually want to sign?

There are some quick and easy changes you can make to ensure your option agreement content is friendlier.

  • Brand it. Make your contracts visually appealing using your contract platform’s rich text editor. Include charts, tables, images and even GIFs to personalise the contract and make the interaction with your employees more human.

  • Use linking and layering. You don’t need to include every relevant detail in your document. Find a contract collaboration platform that allows you to attach documents or link in the text, so your option agreement is clear and concise while also providing all the necessary info.

  • Foreground key terms. Complex legalese and jargon-heavy clauses are a sure-fire way to alienate your employees and slow down time-to-sign. Instead, identify the most important details in your option agreements and put them front and centre to get secure signatures faster.

Useful features

  • Custom dashboards. Table views in contract collaboration platforms like Juro can help you filter agreements by different things – like number of options, signing status, vesting date, etc. 

  • Commenting. Being able to discuss internally with your colleagues without ever leaving the contract can make a big difference

  • Mobile-optimized eSignature. This really speeds up time-to-sign. When employees don’t have to waste time printing, signing and scanning an agreement, you can get to ‘yes’ faster.

  • Searchable repository. Keep all your agreements in one place. A contract collaboration platform that uses structured data allows you to filter quickly and easily.

Simplify your agreements with Juro

 

Is managing routine contracts at scale a challenge for your SaaS business or marketplace? 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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