Equity Grant Review Guide
Your equity grant is the most economically consequential document you'll sign at a startup, and the one you're most likely to skim. Eight clauses determine whether the equity is worth what you think it is — or worth nothing.
What it is
An equity grant agreement is the contract that gives an employee, contractor, advisor, or board member equity in a company. Common forms: stock options (ISOs and NSOs), restricted stock units (RSUs), and restricted stock awards (RSAs).
The grant agreement is governed by an underlying Equity Plan — usually 30+ pages, drafted once at company formation, rarely re-negotiated. Your individual grant gets a 5–10 page agreement that incorporates the plan by reference.
Tax treatment varies dramatically by grant type, by exercise timing, and by jurisdiction. The same option grant can be tax-efficient or punitive depending on choices the recipient makes within months of receipt.
Common clauses to check
- [ 01 ]
Grant type & quantity
How many shares, what type, and the strike price (for options) — the headline numbers but rarely the most consequential.
What to look for- Number of shares stated in absolute terms (not just a percentage).
- Share class — common is standard for employees; preferred is investor territory.
- Strike price for options, set at the most recent 409A valuation.
- Grant date — establishes when vesting starts.
Red flags- Grant size dependent on a future event without stated formula.
- Strike price set at "fair market value as determined by the board" with no 409A reference (potential 409A penalty if undervalued).
- Grant subject to changes in the option pool that haven't happened yet.
- [ 02 ]
ISO vs. NSO
Tax treatment differs. ISOs (Incentive Stock Options) qualify for capital-gains treatment if held long enough; NSOs (Non-qualified Stock Options) trigger ordinary income on exercise.
What to look for- ISO vs. NSO clearly stated.
- ISO $100,000 limit per year on grants vesting (excess is automatically NSO).
- Holding period requirements for ISO tax treatment (1 year from exercise, 2 years from grant).
Red flags- Grant labeled "ISO" but for someone ineligible (contractors, board members) — automatically NSO.
- ISO grants vesting in excess of $100K/year — the excess loses ISO treatment.
- [ 03 ]
Vesting schedule
When you actually own the shares. Standard tech is 4 years with 1-year cliff, then monthly.
What to look for- Cliff length (typically 1 year).
- Vesting cadence after the cliff (monthly is friendliest, quarterly common, annual rare).
- How vesting credits are calculated on partial periods.
- Treatment of leave — medical, parental, military.
Red flags- 5+ year vesting.
- Back-loaded vesting (more shares vest later).
- Performance milestones controlled entirely by the company.
- [ 04 ]
Post-termination exercise window
After leaving, how long do you have to exercise vested options? Industry default is 90 days. Punishingly short for valuable shares.
What to look for- Standard 90-day window for ISOs (going beyond converts ISOs to NSOs).
- Some companies offer 7- or 10-year windows for NSOs — much friendlier.
- Acceleration of exercise for terminated employees (rare).
- Notice obligations to exercise (some require certified mail).
Red flags- 30-day window — you have to come up with cash quickly.
- Different windows for different termination reasons (e.g., 7 days for cause, 90 for no cause).
- Forfeiture for failing to exercise within the window — irrespective of cause.
- [ 05 ]
Acceleration on change of control
What happens to unvested equity when the company is acquired. Single-trigger and double-trigger are the two main flavors.
What to look for- Double-trigger: vesting accelerates if (1) the company is sold AND (2) you're terminated without cause within 12-24 months. Standard for senior roles.
- Single-trigger: vesting accelerates on sale alone. Rare and aggressive — acquirers usually re-negotiate before close.
- Pro-rated acceleration vs. full acceleration.
- Treatment if the acquirer offers a comparable role.
Red flags- No acceleration at all.
- Acceleration triggered only by very narrow events (asset sale only, not stock sale).
- Acquirer's ability to substitute equivalent equity rather than accelerate.
- [ 06 ]
Repurchase rights
Company's right to buy back your shares at a stated price under certain conditions.
What to look for- Repurchase of unvested shares at original purchase price — standard and fair.
- Repurchase of vested shares at fair market value — controversial.
- Triggers (termination, breach, change of control).
- Time limits on repurchase windows.
Red flags- Repurchase of vested shares at original purchase price (claws back the upside).
- Repurchase triggered by any termination, including without cause.
- Indefinite repurchase right — never expires.
- [ 07 ]
Transfer restrictions
Whether you can sell or transfer your shares before an exit. Heavily restricted in most private companies.
What to look for- Right of first refusal ("ROFR") for the company.
- Co-sale rights (tag-along) for other shareholders.
- Permitted transferees (estate planning, immediate family).
- Lock-up period after IPO (typically 180 days).
Red flags- Absolute prohibition on transfer with no exceptions.
- Indefinite lock-up periods.
- ROFR with extended consideration window (90+ days), making secondary sales impractical.
- [ 08 ]
83(b) election eligibility
Tax election available for early-exercised options or restricted stock. Must be filed within 30 days of grant/exercise. Massive tax implications.
What to look for- Whether the grant allows early exercise (you exercise unvested options, then file 83(b) to lock in low tax basis).
- Mention of 83(b) election in the grant or accompanying documents.
- Company's process for supporting 83(b) filings.
Red flags- No early exercise option in a high-growth pre-revenue company (lost tax planning opportunity).
- Confusion about 83(b) filing — get tax advice independently; this is a deadline you can't miss.
Other watchouts
- AMT (alternative minimum tax) implications for ISO exercise.
- Net exercise / cashless exercise availability.
- Right of first offer on secondary transactions.
- Drag-along rights forcing sale on company-approved exit.
- Information rights — standard inspection vs. limited.
- Holdback amounts in M&A escrows.
- Treatment of vested-but-unexercised options on bankruptcy.
- Anti-dilution provisions (more relevant for investor grants).
Frequently asked questions
- What's the difference between ISOs and NSOs?
- ISOs (Incentive Stock Options) get capital gains tax treatment if you hold the shares long enough (1 year from exercise, 2 years from grant) but have eligibility restrictions. NSOs (Non-qualified Stock Options) trigger ordinary income tax on exercise based on the spread between strike and fair market value, but have no eligibility restrictions.
- Should I do an 83(b) election?
- Talk to a CPA — but generally yes for early-exercised options where the strike price is at or near current fair market value. Filing within 30 days of grant locks in your tax basis at the low strike price; later appreciation is capital gains. Missing the 30-day deadline is unrecoverable.
- What is double-trigger equity acceleration?
- Vesting accelerates only when TWO events occur: (1) the company is acquired, AND (2) you're terminated without cause (or resign for good reason) within a window after the acquisition. It's the standard for senior roles because acquirers prefer it to single-trigger acceleration.
- How long do I have to exercise stock options after leaving?
- Standard is 90 days post-termination. Some companies offer extended windows (7-10 years) for NSOs — much friendlier. ISOs lose their ISO tax status after 90 days even if the option is still exercisable.
- Can I negotiate equity grant terms?
- Some terms (number of shares, vesting schedule for senior hires, post-termination exercise window) — yes. Some terms (the underlying Equity Plan, repurchase rights, transfer restrictions) — usually not, because they apply uniformly across all grantees. Senior roles have the most leverage; advisors and contractors very little.
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