Grants to new employees based on inaccurate employment commencement dates are troublesome.Options granted as of the commencement of employment based on the market price as of the date of acceptance may be problematic if the plan does not permit below-market grants or the grant is not treated as a discounted option for accounting and tax purposes.
Options granted at less than fair market value or without proper board or committee approvals may violate the terms of the applicable option plan, with the result that options could be invalid.
Exceeding the authority set forth in a shareholder-approved plan may also run afoul of stock exchange rules requiring shareholder approval of equity-based compensation.
State law and bylaw provisions as to the time of effectiveness of unanimous consents may be helpful in evaluating these issues. It is important to note that most of these practices are not inherently illegal.
The practice of granting options in advance of the disclosure of positive news does not involve option backdating, but it is often discussed in the context of backdating and is also under scrutiny. If no documents are forged, and if practices are properly approved and disclosed, appropriately accounted for, properly treated for tax purposes and in accordance with the terms of the option plan, most option granting practices should fall safely within the law.
This problem occurs most often when boards or committees act by unanimous written consent but there is a delay in the receipt of all of the signed consents.