Auditing Authorized Charter Shares Before Executing Service Agreements
An audit of unreserved charter shares prevents ultra vires share promises in service agreements by establishing statutory issuing capacity before execution.
reserved option pool
Meaning
Equity allocations set aside by corporate board authorization dedicate a specified percentage of stock for future team incentives. A reserved option pool isolates unissued shares specifically earmarked for equity option grants to employees or directors. Reserving these shares dilutes existing shareholders at the time of pool creation or expansion.
The authorization boundary prevents management from issuing option grants beyond the designated pool size without renewed board approval.
Dilution Impact
Creating equity pools prior to investment rounds shifts dilution directly onto existing equity holders. Setting a reserved option pool reduces founder ownership percentages before new investor capital enters the business. Precise calculation ensures transparent capitalization tracking.
Board Allocation
Managing earmarked share reserves requires formal board approval for every individual option grant issued to service providers. Within the reserved option pool, unallocated shares remain available for future talent hiring without requiring immediate shareholder votes. As grants vest, option holders gain rights to exercise shares according to contractual vesting schedules.
Exhausting the pool forces corporate leadership to seek formal shareholder approval for pool expansion. Ungranted options return to available corporate capacity if the incentive plan terminates.
Grant Capacity
Issuing options beyond board-approved pool limits creates unauthorized equity claims that lack legal backing. Maintaining a reserved option pool requires tracking allocated grants against total authorized pool size. Accurate accounting prevents overissuance disputes with key employees.