Equity for Engineers

An independent third-party appraisal of a private company's common-stock value, refreshed at least every twelve months or after any material event, used to set legally defensible strike prices for stock options under IRS Section 409A.

A one-page IRS filing you must send within 30 days of getting restricted stock that lets you pay tax now on its tiny current value instead of later as it vests at much higher prices.

The ledger that tracks who owns what in your company (every founder, employee, investor, SAFE holder, and option grant), usually expressed as percentages and share counts on a fully-diluted basis.

The baseline class of company shares, held by founders and employees, with no liquidation preference and the last claim on proceeds after every preferred shareholder has been paid.

What happens to your ownership percentage when the company issues new shares: your slice of the pie shrinks, even as the pie itself gets bigger.

An equity provision that fully vests unvested shares only when two events both occur within a defined window: the company is acquired, and the employee is terminated without cause or resigns for good reason within a year of closing.

An additional equity grant given to a tenured employee, layered on top of their original grant so that unvested equity does not trickle to zero as the four-year vesting curve runs out.

The per-share price the IRS treats as the true current value of a company's common stock (Fair Market Value), used to set option strike prices and calculate how much tax you owe when you exercise.

The common stock issued to founders at incorporation, priced at a fraction of a cent and almost always on a reverse vesting schedule so a founder who walks early gives most of it back.

A US-only employee stock option (Incentive Stock Option) that can qualify for lower long-term capital gains tax if you hold the shares long enough, in exchange for tighter rules and Alternative Minimum Tax exposure at exercise.

A stock option (Non-Qualified Stock Option) taxed as ordinary income on the spread between strike price and fair market value the moment you exercise, with no special IRS treatment.

A block of shares (usually 10% to 20% of the company) set aside for future employee grants, almost always carved out of the pre-money so existing shareholders absorb the dilution, not the incoming investor.

The reserved pool of company shares set aside for employee, advisor, and contractor grants, expressed as a percentage of the fully-diluted cap table and drawn down each time a new hire signs.

The class of company shares issued to venture investors at each priced round, carrying liquidation preference, anti-dilution protection, board rights, and other contractual privileges that common stock does not have.

A promise from your employer to deliver real company shares (Restricted Stock Units) as each chunk of your vesting schedule hits, with the value taxed as ordinary income the moment it lands.

The fixed per-share price an employee pays to exercise a stock option, set at the company's fair market value on the day the option is granted.

The waiting period at the start of equity vesting, usually a year, during which you earn zero equity, after which a chunk vests all at once.