Equity grant mechanics. How to grant employee options.
Granting equity to employees involves several moving parts: an option plan adopted by the board, individual grant documentation, board approval of each grant, exercise price (set by 409A), vesting schedule, and various tax considerations. This guide walks through the mechanics.
Start here.
Board-adopted plan defining total option pool, terms, eligibility.
Granted via Option Agreement: number, type, strike, vesting.
Each grant requires board action (consent or meeting).
Must be at or above 409A FMV.
Standard 4 years with 1-year cliff.
The full picture.
Adopt a Stock Option Plan
Board adopts a plan (e.g., 2026 Stock Plan). Defines: pool size (e.g., 2,000,000 shares), types of grants allowed (ISO, NSO), eligibility (employees, contractors, advisors), terms (exercise prices set per 409A, vesting schedules, expiration, etc.). Shareholders typically approve at the next shareholder meeting.
Individual Grant Documentation
Each grant uses an Option Agreement specifying: optionee, number of shares, type (ISO or NSO), exercise price (= 409A FMV at grant), vesting schedule, expiration date (typically 10 years from grant), termination provisions.
Board Approval
Each grant requires board action. Common: board adopts a written consent listing all grants for a period (e.g., monthly). Documented in board records.
Exercise Price (Strike)
For ISOs: must be at or above FMV at grant per 409A. For NSOs: same general rule, plus 409A penalties at the option holder level if below FMV.
Vesting
Standard 4 years with 1-year cliff. Variations: 5-year vesting at later-stage companies; immediate vesting for advisors; performance-based vesting for executives.
ISO vs NSO
ISO (Incentive Stock Option): favorable tax treatment for employees. Limited to $100k vesting per year per person. Only for employees. NSO (Non-Qualified Stock Option): no special tax. Available to non-employees. Both subject to 409A.
Tax Forms
Grant: no tax. Exercise: ISO no immediate tax (AMT consideration); NSO ordinary income on spread. Sale: ISO qualifying disposition = capital gain; NSO = capital gain on appreciation post-exercise.
Termination Provisions
Standard: vested options have 90 days post-termination to exercise. Unvested options forfeited. Some plans extend exercise window for good-leaver scenarios.
Common Mistakes
Granting options without an adopted plan. Below-FMV strike (triggers 409A penalties). Missing board approval. Granting ISOs to non-employees (invalid). Allowing exercise post-90-days without plan provision.
Common questions.
How do equity grants work?
What is the difference between options and restricted stock?
How is the option strike price set?
How does vesting apply to grants?
What comes out of the option pool?
Do grants affect my cap table?
What tax issues come with equity grants?
How do I document equity grants?
Can File.Business help manage equity grants?
Founder-ready foundation.
Form your entity, get the EIN, set up banking, manage the cap table, file BOI. All in one place.
Educational guide. Specific situations require professional legal and tax advice.
How we deliver, end-to-end.
Four-step path from request to confirmation. State and IRS turnaround varies; our steps run in parallel where possible to compress the timeline.
Intake + scope
You tell us what you need through a short intake form (or a call for complex matters). We confirm scope, surface any gating issues (deadlines, missing documents, entity status), and quote any state fees that pass through at cost.
Prepare + verify
Our specialists draft the filing, verify entity details against state databases, run internal QA, and route any items needing your sign-off. You see drafts before anything gets submitted.
File with the authority
We submit directly to the state Secretary of State, FinCEN, IRS, USPTO, or whichever authority your filing requires. We pay state fees at cost and track the submission identifier in your account.
Confirmation + vault
Stamped certificate, IRS notice, or filing receipt arrives in your SOC 2 encrypted document vault the moment we receive it. Next filing deadline auto-added to your compliance calendar where applicable.
Built on the same infrastructure used by 220,000+ businesses.
SOC 2 Type II audited
Independent annual security audit covering access control, change management, incident response, and data handling. Current report on request.
All 51 US jurisdictions
Every state plus DC plus Puerto Rico - direct filings, not third-party reseller. We hold registered-agent qualifications in every state we operate.
Deadline guarantee
If we miss a filing deadline on a service you pay us to manage, we pay the state penalty. Specific to each plan and the filings it includes.
4.9 from 8,200+ verified reviews
Independently verified by Trustpilot + Google + our own NPS infrastructure. Customer success team within reach by email, chat, or phone.
60-day money-back promise
Change your mind in the first 60 days and we refund our service fee in full. State filing fees pass through at cost and are non-refundable once paid to the state.
E&O insured
Errors and omissions coverage protects you from service errors. Carrier and certificate available on request for enterprise clients.