Document Your Equity Grants and Make Sure They’re Cap Table-Ready
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Unclear or undocumented equity promises can derail M&A deals and dilute your equity.
BEST PRACTICES:
Ensure equity grants are valued properly under IRS Section 409A to avoid adverse tax consequences for employees and founders alike. Clearly define vesting schedules, cliffs, and exercise rights in grant agreements. Misunderstandings about equity can lead to internal disputes or litigation. Use a formal board-approved stock option plan. Avoid handshake equity promises or verbal understandings, which are unenforceable and risky.
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