Section 280G Shareholder Consent to Parachute Payments

Summary

Use this template to solicit shareholder approval of a disqualified individual's parachute payments to satisfy the requirements for the shareholder approval exemption to the application of the golden parachute rules under I.R.C. §§ 280G and 4999. This template contains practical guidance and drafting notes. Parachute payments are compensatory payments made to disqualified individuals (i.e., certain shareholders, officers, and highly compensated individuals) that are contingent on the change in ownership or effective control of a corporation and that, in the aggregate, equal or exceed the statutory threshold. I.R.C. § 280G(b)(1). If the threshold is exceeded, then the portion of parachute payments deemed to be excess parachute payments may not be treated as a deductible expense by the paying corporation and are subject to a 20% excise tax payable by the disqualified individual under Sections 280G and 4999, respectively. However, a common exemption available to private companies may apply if company shareholders having 75% of the voting power approve of the parachute payments in accordance with the requirements set forth under I.R.C. § 280G(b)(5)(B); see Treas. Reg. § 1.280G-1, Q&A–7. This template is designed to solicit shareholder consent in accordance with those rules. For more information on the golden parachute rules, see Sections 280G and 4999 Parachute Payment Rules, the Section 280G Resource Kit, and Taxation of Executive Compensation § 3.11. For guidance and templates regarding the shareholder approval requirements, see Section 280G for Private Companies, Section 280G Parachute Payment Disclosure Statement, and Section 280G Parachute Payment Waiver Agreement.