Plan limit is the authorized cap on shares (or total award value) that a company’s equity incentive plan may grant under its approved documents—typically set when the plan is adopted and increased only with stockholder consent.

How it works

The board adopts an equity incentive plan with a share reserve—say, 10% of fully diluted capitalization at adoption. Each option, RSU, or other equity award draws down that reserve. Finance and legal track “available to grant” versus outstanding and exercised awards. When the reserve nears zero, the company proposes a plan amendment or pool increase, often bundled with a financing round.

Investors model plan limits alongside option pool targets. A round term sheet may require expanding the pool to a post-money percentage, which must fit within an amended plan limit after stockholder vote. Grant dates cannot exceed available shares; systems like Carta or Pulley flag shortfalls before board approval.

Why it matters

• Founders: Promising candidates options you cannot legally grant damages recruiting credibility and may require emergency stockholder meetings.
• Investors: Plan limit history reveals whether prior rounds left enough headroom for hiring through the next milestone.

Common mistake

Confusing the plan limit with the option pool percentage in a term sheet. The term sheet target must be implemented via plan amendment, board resolutions, and accurate fully diluted math.

Related ideas

See equity incentive plan, option pool refresh, and cap table hygiene.