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A professionally drafted stock option grant notice and summary table to formally issue equity and vesting terms to your startup's employees, advisors, or key contributors.
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This document is the bridge between your startup's big vision and the tangible ownership promised to your early team members. When you bring on key engineers, advisors, or early hires, a casual handshake is never enough to secure their trust. You need a formal Notice of Stock Option Grant to clearly lay out the exact number of shares, the purchase price, and the timeline on which those shares are earned. A great notice acts as a clear, legally binding summary that sits on top of your larger Equity Incentive Plan. It translates dense legal jargon into a clean, readable table that any contributor can understand at a glance. By getting this document right, you build deep trust with your team, prevent future equity disputes, and maintain clean bookkeeping that future investors will appreciate when you raise your next round. It is a vital tool for turning early contributors into true owners of the company's shared success.
Incentive Stock Options (ISOs) are reserved exclusively for employees and offer potential tax advantages, such as deferring taxes until the underlying stock is sold. Non-Qualified Stock Options (NSOs) can be granted to advisors, consultants, and contractors, but they trigger a taxable event immediately upon exercise. Your grant notice must explicitly state which type is being issued to ensure correct tax reporting.
The strike price must be set at or above the Fair Market Value (FMV) of the company's common stock on the exact date the board approves the grant. Startups determine this FMV using an independent appraisal known as a 409A valuation. Setting the strike price lower than the 409A valuation triggers severe tax penalties for the option holder under IRS Section 409A.
A one-year cliff means that no options vest or belong to the recipient until they have completed one full year of continuous service. On the first anniversary of their start date, a lump sum of 25% of the total grant vests all at once. After the cliff is met, the remaining 75% of the options typically vest in equal monthly increments over the next three years.
No, you cannot legally issue or execute a stock option grant notice without formal Board of Directors approval. The board must approve the specific pool of options, the individual grant, and the fair market value before the notice is generated. Any document sent beforehand is merely a non-binding offer letter or summary of intent, not a legal grant.
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