We have a certain number of common shares authorized by our board. We have that many shares outstanding now if you include our current option grants and remaining option pool. We are now considering increasing our option pool size. Do we need the board to authorize more common shares in order to account for the new option pool, even if they are not yet granted? Thanks!
Do we need board approval (authorization) for our option pool shares?
Answers
From the information provided, I think you would need to obtain Board and Shareholder approval to amend your certificate of incorporation to increase your available shares and amend your stock plan to increase the shares available under the plan.
We had that same question recently and that sounds right, Patricia. Thank you.
If you are that close to the limit of your authorised shares already, it sounds like you should consider increasing the authorised limit anyway, and not just by the amount of the contemplated option pool increase.
Increases in authorised shares need shareholder approval since the increase represents potential dilution to their investment positions. Depending on the number, distribution and general happiness of your shareholders, the time an effort involved in organising shareholder meetings or circulating shareholder resolutions may be something you want to minimise, so I suggest you think ahead and allow for any other potential requirements for common stock: additional option or stock grants, use of stock to pay debts, acquire assets, etc.Typically, I have seen option pools in the range of 10-15% of shares outstanding, if you are wanting to add more you may meet shareholder resistance.
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