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Date: 9 de September de 2024
Posted by: CPDMA Team

Stock options as a form of employee incentive and their importance for startups

Imagem da advogada Luciana Klug, autora do artigo sobre stock options e startups no Brasil.

The phenomenon of stock options appeared in the United States in the 1950s and gained great visibility after the 1980s, when it became an almost absolute practice among large American companies. In the United States, the peak of the stock options granting system occurred between the years 2000 and 2001.

In Brazil, the topic gained even greater prominence with the startups.

Originally applied to corporations, stock options authorize the option for employees to purchase shares in the future at a pre-set price, which is usually lower than the market price, after a stipulated vesting period. If the share value exceeds the price, the employee makes a profit and, consequently, two alternatives are offered: immediately sell the added value or keep the shares and become a shareholder employee.

The granting of the stock option undeniably engages the employee in the performance of their duties for the company’s success. Good business results during the employment contract, with effects on the value of the shares, offer employees the chance of capital gains.

The beneficiaries of a stock options program are usually executive employees and, in some cases, the company’s board members and consultants. The selection of beneficiaries may vary according to the company’s strategy and the program’s objectives..

The beneficiaries of the stock options are generally executive employees and, in some cases, company directors and consultants. The choice of beneficiaries can vary according to the company's strategy and the program's objectives.

In the labor context, the limited controversy regarding stock options revolves around their legal nature (whether compensatory or not).

The Superior Labor Court (TST) has consistently ruled that stock option grant contracts do not have a wage nature, as they are not a counterpart for the employee’s work, even when entered into due to the employment relationship. Indeed, at the time of exercising the stock option, the employee assumes ownership of the shares and becomes subject to market volatility, with any resulting difference, whether positive or negative, not having a wage nature (it arises solely from the business transaction and not from the employment relationship).

With the advancement of technology, startups—innovative and scalable companies—are growing at an accelerated pace, promoting forms, environments, and work methods that deviate from the usual.

There is, however, no specific legislation regulating the labor and employment relations of startups. Complementary Law 182/2021 (Legal Framework for Startups) does not mention hiring forms and labor rights, making it necessary to use the Consolidation of Labor Laws (CLT) to regulate employment relations. Thus, startups have all labor obligations and responsibilities, depending on the hiring method they adopt.

In other words, although they have an innovative and disruptive business model, startups are subject to the labor regulations applicable to any other company.

In this context, stock options are an excellent mechanism for startups, as the option for equity participation encourages work focused on agreed-upon results or goals. It also helps attract and retain highly skilled talent to perform their duties and drive the company’s growth.

Stock options are, therefore, revealed to be an important tool in the management and growth process of startups.

In summary, despite the absence of specific legislation regarding the taxation of stock option plans, the prevailing judicial understanding is that the amounts derived from these contracts do not have a compensatory nature. Since it is a commercial relationship, they are only subject to capital gains taxation.

By: Luciana Klug
Labor Law | CPDMA Team

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