Startup equity compensation

Employee stock option advisory for startups.

A grant affects ownership, exercise costs, and taxes. Work through the numbers before you issue options to your team.

Figures connects founder-level finance with in-house tax advice for U.S. employee stock options.

Illustrative tabletop view of people reviewing a cap table and stock option grant schedule
Grant math
Pool size, ownership, and dilution
Share value
409A context and exercise assumptions
Tax timing
ISO and NSO scenarios
Talk to an Advisor

The consultation is free. We will agree on the scope and price before work begins.

What Figures helps you decide

What goes into an employee stock option grant?

Start with the cap table and the grant terms. Figures helps model the share of the company a grant represents, the cost to exercise it, the value assumptions behind the price, and the possible U.S. tax treatment.

We support the financial and tax analysis. Equity-plan documents and legal approvals stay with your counsel; a formal independent 409A appraisal, if needed, stays with the appropriate valuation specialist.

The advisory work

The grant is more than a percentage.

Connect the option-pool calculation to valuation and tax questions before numbers go into an offer.

Illustrative financial working papers and a pen

01. Grant and pool calculations

Calculate proposed grants as a share of the fully diluted capitalization, model option-pool changes and future dilution scenarios, and make the assumptions visible before a hiring decision.

02. Valuation context

Review the common-share fair market value used in grant and exercise scenarios. Figures helps examine the financial assumptions and coordinate with an independent specialist when a formal 409A appraisal is needed.

03. Exercise and tax scenarios

Estimate exercise cash, the share-value spread, and relevant timing for ISOs and NSOs.

04. A working decision record

Bring the cap table, grant terms, dates, and valuation assumptions together so founders and their legal advisers can make decisions using the same numbers.

A worked example

What do 10,000 options actually mean?

A simple illustration shows why ownership, cash cost, and tax are three different numbers.

Illustrative grant, not a client result

Options in grant10,000
Fully diluted shares, including grant1,000,000
Exercise price per share$1
Assumed share value at exercise$4
01 / Ownership at grant1%

10,000 ÷ 1,000,000 fully diluted shares, before later dilution.

02 / Exercise cash$10,000

10,000 options × $1 exercise price.

03 / Spread at exercise$30,000

10,000 × ($4 share value − $1 exercise price). This is not the tax owed.

Actual tax treatment depends on whether the grant is an ISO or NSO, the applicable dates and values, and the holder's facts. For most NSOs, the spread is generally income at exercise. ISO exercise may create an alternative minimum tax adjustment. See IRS Topic 427 (opens in a new tab).

Tax and valuation

When does the tax question arise?

The option type and the relevant dates change the answer. Figures brings those facts into the financial decision.

01 / Incentive stock options

ISO exercise may affect AMT.

Grant and exercise generally do not create regular taxable income, but an ISO exercise can affect alternative minimum tax. A later sale and the holding periods can change the treatment.

02 / Nonqualified stock options

NSO exercise may create income.

For most NSOs without a readily determinable option value, the difference between the shares' fair market value and the amount paid is included in income at exercise. A later sale is a separate event.

Before the grant

Where does a 409A valuation fit?

For private-company stock, the fair market value supporting the option price must be based on a reasonable valuation method under applicable rules. We can examine the finance inputs and coordinate valuation questions. A formal independent appraisal, when needed, stays with the appropriate valuation specialist.

For an 83(b) election, the timing rule generally follows an actual transfer of substantially nonvested property, not an ordinary option grant. If an early exercise transfers restricted shares, ask about that election promptly.

IRS stock-option tax rules (opens in a new tab)IRS Form 15620 instructions (opens in a new tab)409A valuation rule (opens in a new tab)

How it works

Start with your cap table and the decision ahead.

We define the work before calculating a grant or advising on its tax treatment.

Share the starting point

Bring the current cap table, proposed grants, equity plan and any existing 409A report. Tell us which hiring or exercise decision is coming up.

Work through the scenarios

We agree the scope, then model ownership, dilution, exercise cash, and relevant tax questions using the dates and values available.

Make the decision with the right team

Use the analysis with your counsel and valuation specialist where formal documents or an independent appraisal are needed. Figures stays focused on the finance and tax questions in its agreed scope.

Need an ongoing startup finance team as well? Explore startup accounting and CFO services

Questions about startup stock options

What does employee stock option advisory cover for a startup?

Figures helps founders model proposed grants and option-pool effects, review exercise-price and fair-market-value assumptions, and work through U.S. tax timing for incentive stock options (ISOs) and nonqualified stock options (NSOs). The precise scope is agreed after we review your cap table, plan documents, and existing valuation.

Is a 409A valuation the same as an employee stock option plan?

No. A stock option plan sets the rules for grants. A 409A valuation is used to support the fair market value of private-company common stock for relevant tax purposes, including option pricing. Figures can review the financial assumptions and coordinate valuation questions; any formal independent appraisal and legal plan documents require the appropriate specialists.

How are ISOs and NSOs taxed?

For most NSOs without a readily determinable option value, the difference between the share value and the amount paid is generally included in income at exercise. ISO exercise generally does not create regular taxable income, but it may trigger alternative minimum tax. The later sale and ISO holding periods also matter. The right calculation depends on the grant, dates, values, and holder's circumstances.

Can an employee make an 83(b) election when options are granted?

An 83(b) election does not automatically apply to an ordinary stock-option grant. It may be relevant when substantially nonvested shares are actually transferred, including certain early-exercise situations. When available, the election generally must be filed within 30 days of the property transfer, not 30 days of a routine option grant.

Does ESOP mean the same thing as a startup stock-option pool?

Not in U.S. tax law. An employee stock ownership plan (ESOP) is a qualified retirement plan. Some startup guides use 'ESOP' informally for an employee option pool. This service addresses startup stock options and equity compensation, not the design or operation of a qualified retirement-plan ESOP.

What records should a startup prepare before granting stock options?

Start with the equity plan and proposed grant terms, an up-to-date cap table, board approvals, and the common-share valuation used for the proposed exercise price. Legal counsel handles plan and grant documents. If employees exercise ISOs, the company also has IRS Form 3921 reporting obligations for the resulting share transfers.

Is stock-option advisory included in the $1,999 startup plan?

We will confirm the scope and price after reviewing your stock-option needs. The $1,999 startup accounting and CFO plan covers the ongoing finance work described on its own page; it should not be read as a fixed-price quote for a separate equity-compensation project. Tax-return preparation and filing are scoped separately.

Talk to an Advisor

Work through the grant before you make it.

Tell us about your option pool, planned grants, and valuation or tax questions. We will discuss the right advisory scope and price in a free consultation.