Company to provide stock: Overview, definition, and example
What does "company to provide stock" mean?
The phrase "company to provide stock" refers to a provision or requirement in a contract or agreement where a company agrees to issue or deliver shares of its stock to another party, often as part of compensation, investment, or an acquisition arrangement. This provision is common in employee stock option plans, shareholder agreements, or during mergers and acquisitions (M&A) where one party agrees to distribute stock as part of the transaction.
The stock provided can be common stock, preferred stock, or another form of equity interest in the company. The purpose of providing stock can vary but typically includes incentives for employees, additional capital for the company, or as part of a deal during the sale or merger of a company.
Why is "company to provide stock" important?
The "company to provide stock" provision is important because it enables the company to raise capital, incentivize employees, or reward stakeholders without immediate cash payments. By offering stock, companies can align the interests of employees or partners with the company’s success, as stockholders benefit directly from the company’s growth and profitability.
For employees, receiving stock can be a way to share in the company’s future success, often as part of an employee compensation plan. For investors or business partners, receiving stock may be a way to gain ownership or a stake in the company without needing a large upfront cash investment.
Understanding "company to provide stock" through an example
Imagine a startup company that is looking to attract skilled employees but is unable to offer high salaries due to limited capital. Instead, the company offers stock options as part of the compensation package. The employee is granted the right to purchase a certain number of shares at a predetermined price, typically after a vesting period. If the company grows and the stock price increases, the employee can purchase the stock at the original price, potentially making a profit.
In another example, a company that is being acquired may agree to provide stock in the acquiring company to the shareholders of the target company. Instead of paying cash, the acquiring company offers stock as part of the deal, allowing the target company’s shareholders to become shareholders in the acquiring company.
Example of a "company to provide stock" clause
Here’s an example of what a "company to provide stock" clause might look like in an employee stock option agreement or a merger agreement:
“The Company agrees to provide [X number] of shares of its common stock to the Employee as part of their compensation package. The shares will be issued in accordance with the Company’s Stock Option Plan, with a vesting schedule of [X] years, starting from the date of hire. Additionally, in the event of a merger or acquisition, the Company agrees to exchange its stock for stock in the acquiring company at a ratio of [X shares of Acquiring Company for every X shares of Target Company].”
This clause outlines the specifics of stock provision, including the number of shares, the vesting period, and how the stock will be handled in a merger.
Conclusion
"Company to provide stock" is a common provision in business agreements that allows a company to issue shares to employees, investors, or partners as part of compensation, incentives, or acquisition terms. This provision can be an attractive alternative to cash payments, aligning the interests of stakeholders with the company’s performance and providing a method for raising capital or rewarding key contributors. Whether in employee compensation plans, mergers, or investment agreements, providing stock helps foster long-term commitment and growth for the company and its stakeholders.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.