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Equity Incentive Plans / Equity Stock Option Plans
For startup founders, an option pool is more than a technical detail - it’s a strategic tool. The size, structure, and timing of your equity incentive plan can determine your ability to attract top talent, align incentives, and keep your company’s cap table clean for future investors.
Option Pools and Acquisitions: Navigating the Equity Landscape
When a startup is acquired, the treatment of its option pool becomes a critical factor for both founders and employees. Option pools influence retention, compensation, and how value is distributed during a merger or acquisition. Understanding what happens to these equity instruments helps founders negotiate better terms and employees make informed financial decisions.
NSOs v. ISOs: Strategic Equity Decisions for Startups
For startup founders, choosing between Non-Qualified Stock Options (NSOs) and Incentive Stock Options (ISOs) isn't just a matter of tax implications—it's a strategic decision that affects your ability to attract talent, manage company finances, and create the right incentives. Let's explore both options to help you make informed equity decisions for your venture.
Stock Options: An Overview
For startup employees, stock options represent more than just potential future wealth - they are a key part of compensation and long-term financial planning. Understanding how stock options work, and the differences between option types, can help you make informed decisions that align with your career and financial goals.
FAQs
Open allCan I make an offer letter verbal instead of written?
It’s not recommended. A written letter avoids disputes, creates clarity, and provides a paper trail if questions arise later.
Do startups need both an offer letter and an employment agreement?
Yes. The offer letter provides a summary of terms, while a formal employment agreement can cover more detailed obligations, protections, and restrictions.
Is an offer letter legally binding?
Most offer letters are not legally binding contracts, but they do outline expectations. Binding obligations often come from separate agreements, like equity grants or confidentiality agreements.
Should startups get resignations in writing?
Yes. Even a simple email confirmation helps avoid disputes later and provides documentation if questions arise with unemployment agencies.
What should startups include in a final paycheck?
All wages earned, plus unused vacation or PTO if state law requires it. Bonuses or commissions earned up to the last day should also be included.
Can employees who quit still collect unemployment?
In most cases, no. However, if they resigned due to unsafe conditions, harassment, or other “good cause,” they may still qualify.
Does it matter legally if someone quits or is fired?
Yes. Terminations usually trigger more legal and financial obligations, including unemployment eligibility and faster final paycheck deadlines.
What’s the best way to tell the team about a termination?
Keep it professional, brief, and focused on the business. Avoid sharing details about performance or personal issues. Frame the update around the company’s future direction.
Should founders always use a separation agreement?
Not always. For low-risk terminations, it may not be necessary. However, in cases involving layoffs, complaints, or sensitive situations, a separation agreement can reduce potential disputes.
Do startups have to pay unused vacation after termination?
It depends on the state. For example, California requires payout of unused vacation, while other states leave it to company policy. Check your state’s rules before finalizing pay.
Can a startup fire someone without giving a reason?
In most at-will employment states, yes. However, firing must not be based on discrimination or retaliation. Documenting valid business reasons is strongly recommended.
How often should startups review classifications?
At least annually, or whenever roles change significantly. Job responsibilities, not just titles, determine exemption status.
Do all salaried employees qualify as exempt?
No. Salary alone isn’t enough - the role must also meet the duties test.
What happens if I misclassify an employee?
You may owe back overtime pay, penalties, and attorney fees. Regulators can also audit your payroll practices.
What does “exempt” mean under employment law?
It means the employee is exempt from overtime pay requirements, usually because they earn a salary and perform executive, administrative, or professional duties.