Stock option agreement. Employee Stock Option (ESO) Definition

About Stock Option Agreements

Because your purchase price stays the same, if the value of the stock goes up, you could make money on the difference. Restricted stock is different than stock options and is treated differently for tax purposes.

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Stock option grants are how your company awards stock options. Your stock option agreement should also specify its expiration date.

Part 1: Startup stock options 101

However, your grant can also expire after you leave the company—you may only have a short window of time to exercise your options buy stock option agreement shares after you leave. Remember: If you hope to purchase and sell your stock someday, accepting your stock option agreement is the first step you have to take. Instead, simply log into your portfolio to accept, view, and print the actual agreement.

Vesting Vesting means you have to earn your employee stock options over time. Meetly has stock option agreement traditional vesting schedule.

All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix. Grant of Option. The option is a non-statutory option under the US federal income tax laws.

In this example, you have a one year cliff, which is standard. This means after one year of working at Meetly, you can buy a quarter of your options, or 25 shares.

  • Termination Period: This option may be exercised for three months after the optionee's Termination Date, except that if the Optionee's Termination of Service is for Cause, this option shall terminate on the Termination Date.
  • Employee stock options ESOs are a type of equity compensation granted by companies to their employees and executives.
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  • Equity Stock options explained for startup employees | Carta

If your option grant includes a cliff, it prevents that. The other piece of your vesting schedule to keep in mind is the total length of the vesting schedule.

This outlines how often, and for how long, your shares will vest.

In this example, after you reach your cliff, your remaining shares will continue to vest for three years—two shares each month.

Termination If you leave the company, your shares will stop vesting immediately and you can only buy shares that have vested as of that date. And you only maintain this right for a set window of time, called a post-termination exercise PTE period.

Historically, many companies made this period three months. However, some companies offer more generous PTE periods now.

Breaking Down the Stock Option Agreement

At Carta, for example, you have as long as you worked at the company to buy your shares. We went over stock option agreements: an important document you want to make sure you receive and sign.

We covered vesting schedules and how companies use cliffs to incentivize employees to stay longer. Finally, we discussed what happens to your stock options if you leave the company.

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These are the four things that every startup employee should think about when they receive their offer letter and join a new company. In our next section, we cover how to think about what your options are actually worth.

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This communication is not to be construed as legal, financial or tax advice and is for informational purposes only. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security.

Stock Option Agreement

Carta does not assume any liability for reliance on the information provided herein. Jenna Lee Jenna is on the content team at Carta. Despite working in Fintech her entire career, she has never had a La Croix.

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