October 14, 2026
Promising equity is a line in an offer letter, advisor agreement or conversation. Issuing equity means a board approval, a signed stock purchase or option agreement, payment of any purchase price, and an entry on the cap table. Until that happens, the person owns nothing. The longer the gap, the more the 409A price, and the cost to the recipient, can rise. If you’ve promised equity you never issued, fix it now.
Key takeaways
A verbal commitment, or the equity terms in an offer letter, contractor agreement or advisor agreement. A signed agreement with definite terms may be an enforceable contract to grant the equity; a vague one invites a dispute. Either way, it isn’t stock.
Stock is “issued”; options and RSUs are “granted.” The issuance also relies on a securities law exemption, usually Rule 701 for employees and advisors, and some states require a notice filing.
Many companies approve grants in monthly or quarterly batches. Tell new hires when to expect theirs. And promise a number of shares, not a percentage. See Exact Share Numbers, Not Percentages.
Have the board approve the grant now, at today’s fair market value. You can’t backdate it, but you can set the vesting commencement date to the person’s original start date so they get vesting credit.
Example: In October, before any 409A, a founder promises an early employee 80,000 shares. At $0.00001 par, buying them would have cost $0.80. The grant isn’t approved until June, after a 409A at $0.25 per share. Now restricted stock would cost $20,000, or options would carry a $0.25 exercise price. Some companies offer additional shares or cash to make up the difference.
Founders make the same mistake with their own equity, and investors check for it early in diligence. The founders agree on a split in a pre-incorporation founders’ agreement, an email or a spreadsheet, form the company and never come back to it. That agreement may give each founder a contract claim to a percentage, but it isn’t stock. Until the board issues shares and each founder signs a stock purchase agreement, no one is vesting, the company has no right to buy back shares from a founder who leaves, and the code or designs may still belong to the founder who created them. A founders’ agreement signed before incorporation usually doesn’t handle any of that, and it can’t issue stock in a company that didn’t exist yet.
The fix is to do now what should have happened at incorporation. The board approves the issuance at current fair market value. If nothing has happened to raise the value, such as a financing, a 409A valuation or real revenue, that is usually still par value. Each founder signs a restricted stock purchase agreement with a vesting commencement date set to when they actually started, so they get credit for the time already worked, and a CIIAA assigning everything they’ve built for the business to the company. Each founder then files an 83(b) election within 30 days of the date the shares are issued. See I Just Incorporated My Startup. Do I Need to Do Anything Else?
Waiting makes the fix more expensive. Once the stock has real value, founders have to pay that value in cash, take stock options instead (which carry no votes until exercised), or buy at a discount and report the discount as income, and the capital gains holding period doesn’t start until the shares are actually issued. Each route has tax consequences, so talk to a tax advisor before choosing one.
Board consents usually make a grant conditional on the recipient signing within a set period. If they never sign, the equity was never issued, and the shares stay in the pool.
See our Cap Table Cleanup service.
