Full question:
I am currently an employee at a Seattle based internet company that is an s-corp. I have been with the company for almost 4 years. I do have SARS and as a foreigner on an H-1B visa, my SARS are not converting into options since an S-Corp cannot have foreign ownership. If I would leave the company in the near future, what would happen to my SARS? Will I be able to keep them? If the company then converts to a C corp (that is the plan) in the future, will my vested SARS automatically be converted into options?
- Category: Corporations
- Date:
- State: Washington
Answer:
A stock appreciation right (SAR) , is a right to receive a bonus equal to the appreciation in the company's stock over a specified period. SARs benefit the employee with an increase in stock price. The difference from a stock option is that the employee is not required to pay the
exercise price (as with an employee stock option), but rather just receives the amount of the increase in cash or stock. This is normally paid out in cash, but it could be paid in shares. SARs often can be exercised any time after they vest. SARs are often granted in tandem with stock options to help finance the purchase of the options and/or pay tax if any is due upon exercise of the options; these SARs sometimes are called "tandem SARs."
Such bonus plans can be designed in many ways, dealing with issues such as who gets how much, vesting rules, liquidity concerns, restrictions on selling shares (when awards are settled in shares), eligibility, rights to interim distributions of earnings, and rights to participate in corporate governance (if any).
There are special rules in the event that you leave your employer, although generally the expiration is accelerated. The answer will depend on the plan's terms regarding the vesting and expiration of SARS rights. Typically the plan will specify when the SARS rights vest, meaning that
the employee becomes entitled to receive it, and if and for how long any vested or partially vested rights may be exercised upon termination of employment. See your employer's plan rules for details.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.
