An equity agreement template is the standardized contract used to transfer an ownership stake in a company to a founder, employee, or investor. Which template you need depends on what’s actually being granted, but every workable version does the same four things: names the parties, describes the shares or rights being issued, attaches conditions like vesting and transfer restrictions, and sets the rules for what happens when the recipient leaves or the company is sold. Getting these pieces right before signing is what keeps a grant from unraveling during a funding round, an acquisition, or a departure.
Pick the Right Type of Template First
Three structures cover most private-company equity grants, and each uses a different template with different tax consequences.
A stock option agreement gives the recipient the right to buy shares later at a locked-in strike price. Nothing is owned until the option is exercised. Options come in two forms: incentive stock options (ISOs), which can qualify for capital gains treatment if holding periods are met, and nonqualified stock options (NSOs), which trigger ordinary income tax at exercise on the spread between strike price and current value.
A restricted stock agreement transfers actual shares immediately, subject to forfeiture if vesting conditions aren’t met. Because the recipient owns the shares from day one, they can vote and receive dividends before full vesting. Tax treatment turns on whether the recipient files a Section 83(b) election, covered below.
A restricted stock unit (RSU) agreement is a promise to deliver shares once vesting conditions are satisfied. There is no ownership and no shareholder rights until the units settle. Tax is owed at delivery. No 83(b) election is available because no property has been transferred yet.
Startups typically grant options to employees and restricted stock to founders. RSUs show up more at later-stage companies with an established share value. Picking the wrong structure is difficult to fix retroactively, so confirm the type before you download anything.
What You Need Before Filling In the Blanks
Every template has fields waiting for specific data. Have these in hand before you start.
You need the full legal names and addresses of the company and the recipient, the exact number of shares, and the share class (common or preferred). For options, you need the exercise price per share. For restricted stock, you need the purchase price, if any. Both prices should reflect current fair market value, which for a private company is set by a formal 409A valuation.
A 409A valuation is an independent appraisal of the company’s stock. The IRS treats a valuation as presumptively reasonable if performed by a qualified appraiser within the prior 12 months.1eCFR. 26 CFR 1.409A-1 – Definitions and Covered Plans Using a stale or inflated valuation to set an exercise price can trigger a 20% federal penalty tax on the recipient plus interest at the underpayment rate plus one percentage point.2Office of the Law Revision Counsel. 26 USC 409A – Inclusion in Gross Income of Deferred Compensation Under Nonqualified Deferred Compensation Plans Closing a funding round, signing a letter of intent for an acquisition, or a major revenue swing can invalidate a valuation well before the 12-month mark, and a new appraisal is required before any further grants go out.
When you insert values into the template, make the grant date match the date the board actually authorized the issuance. A mismatch between the agreement and the board resolution creates inconsistencies that come up in due diligence. Reconcile the share counts against the existing capitalization table so the math ties out.
Core Provisions Every Template Should Contain
The clauses inside the document do the real work. Read each one before signing.
Vesting Schedule and Cliff
Vesting controls when the recipient earns the legal right to their shares. The standard is four years with a one-year cliff: no shares vest during the first year, and if the recipient leaves before the cliff, they walk away with nothing. After the cliff, vesting typically continues monthly or quarterly over the remaining three years. Some grants tie vesting to performance milestones instead of time, or use both. The template should state clearly what happens to unvested shares at departure, which is usually forfeiture or repurchase at original cost.
Repurchase Rights
Most private-company agreements let the company buy back shares when someone’s service ends. Unvested shares are typically repurchased at the original purchase price or exercise price. Vested shares often depend on how the recipient left: a termination for cause may trigger repurchase at the lower of cost or fair market value, while a voluntary departure or a termination without cause may use current fair market value set by the board.3U.S. Securities and Exchange Commission. Form of Right to Repurchase Agreement The formula matters a great deal to the recipient. Read this clause carefully rather than assume it follows a standard.
Transfer Restrictions and Right of First Refusal
Transfer restrictions prevent shareholders from selling, gifting, or pledging shares without company consent. A right of first refusal (ROFR) requires any shareholder who has a bona fide outside offer to first offer the shares to the company on the same terms. If the company declines, the sale can proceed. The combination keeps shares from moving to unwanted third parties.
Tag-Along and Drag-Along Rights
Tag-along rights protect minority holders. If a majority owner sells, minority holders can join the sale on the same terms. Drag-along rights work the other way: a majority owner who has lined up a buyer for the whole company can require minority holders to sell on the same terms, which is what makes a clean 100% acquisition possible. Well-drafted templates include both as a matched set.
Anti-Dilution Protections
Preferred stock investors often negotiate anti-dilution protection that adjusts their conversion price if the company later raises money at a lower valuation. Two mechanisms dominate. Full ratchet resets the investor’s conversion price to the new, lower price as if they had invested there originally. Weighted average factors in how many shares were issued in the down round against total shares outstanding, producing a smaller adjustment and a friendlier outcome for founders. Most venture-backed agreements use weighted average. If you’re reviewing an investor’s template, check which one it specifies.
Liquidation Preferences
Preferred stock agreements almost always include a liquidation preference. Preferred holders receive their investment back (often plus an accrued dividend) before common stockholders receive anything on a sale or dissolution. The important distinction is participating versus non-participating. Non-participating preferred holders pick the better of two options: take the preference or convert to common and share proportionally. Participating preferred holders take the preference and then also share in the remainder alongside common. That second bite significantly reduces what founders and employees receive in a moderate exit, so the label in the template is not just paperwork.
The Section 83(b) Election: A 30-Day Deadline That Costs Real Money
If your template covers restricted stock, this is where recipients most often lose money by not knowing the rules. Without an election, the IRS taxes restricted stock as it vests, treating the difference between what you paid and what the shares are worth at each vesting date as ordinary income.4Office of the Law Revision Counsel. 26 USC 83 – Property Transferred in Connection With Performance of Services In a fast-growing startup, that tax bill climbs with every vesting increment.
A Section 83(b) election lets the recipient pay tax on the full grant value up front, before vesting. If the shares are worth pennies at grant, the tax bill is minor, and all future appreciation qualifies for capital gains treatment on eventual sale rather than ordinary income at each vesting date.
The election has to be filed with the IRS within 30 days of the transfer date. No extensions.4Office of the Law Revision Counsel. 26 USC 83 – Property Transferred in Connection With Performance of Services The IRS provides Form 15620 for this purpose, or the recipient can file a written statement that includes their name, taxpayer identification number, a description of the shares, the transfer date, the restrictions, the fair market value at transfer, and the amount paid.5eCFR. 26 CFR 1.83-2 – Election to Include in Gross Income in Year of Transfer A copy also goes to the company. If day 30 falls on a weekend or holiday, the deadline moves to the next business day.6Internal Revenue Service. Form 15620, Section 83(b) Election
There is a downside. If you file the election, pay tax at grant, and then forfeit the shares before vesting, the tax payment is not refundable. The election applies only to restricted stock, not to options or RSUs. Some templates include a reminder or attach a blank election form, but the filing responsibility sits entirely with the recipient.
Acceleration When the Company Is Sold
The template should say what happens to unvested shares in an acquisition. There are two common approaches.
Single-trigger acceleration vests some or all unvested shares automatically when the acquisition closes, regardless of whether the recipient stays. Buyers generally dislike this because it removes the retention incentive.
Double-trigger acceleration requires two events: the sale plus an involuntary termination of the recipient, usually within 9 to 18 months after closing, without cause or for “good reason” (such as a significant pay cut, forced relocation, or a major reduction in responsibilities). Some agreements add a short pre-closing window so the company can’t fire someone right before the deal to avoid the payout. Double-trigger is the more common structure because it balances retention with employee protection.
What Happens When Someone Leaves
Templates should treat departures differently based on reason. Many use “good leaver” and “bad leaver” categories with sharply different outcomes.
A bad leaver is typically someone terminated for cause (misconduct, breach of fiduciary duty, violation of a non-compete) or who resigns voluntarily within the first year or two. Bad leavers usually forfeit unvested shares and may be required to sell vested shares back at the lower of original price or current fair market value.
A good leaver is someone terminated without cause, permanently disabled, or deceased. Good leavers generally keep vested shares or have them repurchased at current fair market value. Death and disability clauses often accelerate some or all unvested shares, and the agreement should say how the estate or beneficiary exercises any outstanding rights.
Templates also need to address option exercise windows after departure. Most agreements give a departing employee 90 days to exercise vested options before they expire. ISOs lose their favorable tax treatment if not exercised within 90 days of termination, and recipients often miss that clock.
The Securities Law Exemption Behind the Template
Private companies issuing equity to employees and consultants generally rely on Rule 701 of the Securities Act, which exempts compensatory stock issuances from federal registration. A company can sell at least $1 million worth of securities under this exemption regardless of size, with higher limits available based on total assets or outstanding securities.7U.S. Securities and Exchange Commission. Employee Benefit Plans – Rule 701 If total Rule 701 sales exceed $10 million in any 12-month period, the company must give recipients additional disclosures including financial statements, a summary of the plan’s material terms, and information about investment risks.8eCFR. 17 CFR 230.701 – Exemption for Offers and Sales of Securities Pursuant to Certain Compensatory Benefit Plans and Contracts Relating to Compensation
Rule 701 covers only compensatory issuances tied to a service relationship. Shares sold to outside investors need a different exemption, usually Regulation D. The template should reference the applicable exemption, and the company should track cumulative issuances so the $10 million threshold doesn’t sneak up unprepared.
Signing the Agreement
Once every field is filled and the board has authorized the grant, the agreement needs signatures from all parties. Electronic signatures are valid: a contract cannot be denied legal effect solely because an electronic signature was used in its formation.9Office of the Law Revision Counsel. 15 USC Chapter 96 – Electronic Signatures in Global and National Commerce Most companies use e-signing platforms that generate an audit trail. Some still prefer wet ink for board-level grants or large equity packages. Notarization isn’t required for most equity agreements, though it can add protection against forgery claims in high-value transactions. Having every party initial each page discourages page substitution later.
In community property states, which include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, companies often require a spousal consent form alongside the agreement. Without it, transfer and voting restrictions may not be enforceable against a spouse who has a community property interest in the shares. That gap usually surfaces during a divorce or a company sale, which are the worst times to discover it.
After the Grant: Reporting and Records
Issuing equity creates ongoing obligations. When an employee exercises an ISO, the company must file Form 3921 with the IRS for each transfer during the calendar year.10Internal Revenue Service. Instructions for Forms 3921 and 3922 Employee stock purchase plan transfers require Form 3922. These forms report the exercise date, exercise price, fair market value at exercise, and the number of shares transferred. Failing to file them can produce penalties, and employees rely on them to calculate their own tax.
Recipients who file a Section 83(b) election should keep a copy of the filed election, proof of mailing, and any IRS acknowledgment permanently. Those records matter if the IRS ever questions the election’s timing or validity, and they are needed to calculate gain or loss on an eventual sale.
The company’s capitalization table needs to be updated to reflect the new shares immediately after signing, and the executed agreement belongs in the corporate minute book alongside the authorizing board resolution. Every future funding round and acquisition due diligence will pull those records.