Define backdating

Backdating in most circumstances is considered fraudulent and illegal. For instance, backdating a claim for a past period is taken as legal.grants to one that is earlier than the actual grant date in order to place a lower exercise price on the options and thus enhance the potential profits from the exercise of those stock options.The board formally grants the stock options to John every year at its January board meeting.Typically, the grant date of the stock options is the same as the date of the board meeting.The general reason companies backdate options is to create a lower exercise price, which in turn increases the probability that exercising the options will make more money for the optionee.It’s not unusual for parties to a contract to want the written agreement to cover a period before it’s actually signed.

For a shorter piece with a few practical tips see Backdating – it’s illegal isn’t it?

There are any number of contexts where this comes up — some legitimate and others not exactly aboveboard — but the logistics of negotiating and signing contracts are such that the issue is unavoidable.

(Jason Mark Anderman illustrates the logistics problem well in this comment to a backdating post on Ken Adams’s blog.) There’s nothing inherently illegal or unethical about backdating contracts, although backdating can certainly be both unethical and illegal, depending on the situation.

In our example, backdating the options is the same as giving John Doe a check for ,000 -- without recording that ,000 on the within two business days.

In addition to being illegal, backdating isn't always a sure thing.

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On appeal, the Missouri Court of Appeals, Western District agreed.

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