The event did not happen during the time period required for the benefit so an attempt is being made to pretend that it did. There are some ways in which the lawyer can give himself some protection in agreeing to such a request but they are not foolproof.
However, if the company granted options with an exercise price below fair market value, there would be a compensation expense that had to be recognized under applicable accounting rules. For obvious reasons, any request to backdate a document for these reasons should be flatly turned down. Backdating, in this case, may be useful as the parties, who have already begun acting on the agreement, finish the final details of the written contract. For example, there may have been a transfer of trade from one group company to another on a particular date. In such a case, tax deductions would be denied.
There are some cases where this approach is not possible. This is a fraud on the tax authorities, a criminal offence and is likely to get the lawyer who prepared the document disciplined by his regulator and possibly also charged as a co-conspirator. Together, these factors may indicate that the beneficial interest in the relevant assets has passed from a legal point of view. Two parties in a business contract who explicitly agree in writing that an effective date for the contract can be made at a date prior to the current one. It allegedly failed to inform investors, or account for the options expense s properly.
However, he only realizes this in January and so wishes to backdate the document to December. He also has no way of knowing whether the backdating will be scrutinized by a regulatory authority or even a Court. Secondly, the transfer may trigger liabilities, such as where the relevant group companies participated in a defined benefit pension scheme.
When mistakes happen, be honest about them. In theory, this would appear on the face of it to be a reasonable request, as it is just a private arrangement between two parties. This is never a good idea.
If allowed, up to six-month backdating would apply as long as the buyer pays for that time period. The other major way that backdating can be misleading to investors relates to the method by which the company accounts for the options. Heinen for their alleged roles in backdating Apple options.
Obviously the ideal position is to put in place the legal documents in advance. This is not an agreement that could have been made orally. You will also need to consider two other things from a legal perspective. Until very recently, a company that granted stock options to executives at fair market value did not have to recognize the cost of the options as a compensation expense.
This all but eliminated the opportunity for senior management to engage any meaningful options backdating. For instance, public companies generally grant stock options in accordance with a formal stock option plan approved by shareholders at an annual meeting. Well, it depends on what was transferred, and whether it can be said that the relevant transaction has already happened.
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