Startup Offer Letter Template with Equity (2025)

A comprehensive offer letter template for startups hiring employees with equity compensation. This template covers salary, stock options, vesting schedules (4-year with 1-year cliff), benefits, at-will employment, and all essential terms.

📋 Quick Facts

Aspect	Details
Type	Employment Offer Letter with Equity Grant
Equity Type	Stock Options (ISOs or NSOs)
Vesting Schedule	4 years with 1-year cliff (industry standard)
Format	Word document and PDF
Customization Time	30-60 minutes
Legal Review	Recommended
Use Cases	Full-time employees, part-time employees (pro-rated equity)

🎯 What This Template Includes

This startup offer letter template covers all essential terms:

✅ Position and Role

Job title and reporting structure
Start date and location (remote, hybrid, or in-office)
Exempt or non-exempt status (overtime eligibility)

✅ Compensation

Base salary (annual or hourly)
Payment schedule (bi-weekly, semi-monthly)
Exempt vs. non-exempt classification

✅ Equity Compensation

Type of equity (stock options - ISOs or NSOs)
Number of shares/options granted
Exercise price (strike price)
Vesting schedule (4-year with 1-year cliff)
Subject to equity plan and separate grant agreement

✅ Benefits

Health insurance (medical, dental, vision)
401(k) or retirement plan
PTO and holidays
Other benefits (life insurance, disability, etc.)

✅ At-Will Employment

Employment at-will (can be terminated by either party at any time)
No employment contract or guaranteed duration

✅ Confidentiality and IP Assignment

Reference to separate PIIA (Proprietary Information and Inventions Agreement)
Confidentiality obligations
IP assignment to company

✅ Contingencies

Offer contingent on background check
Offer contingent on proof of eligibility to work (I-9)
Offer contingent on signing required agreements

✅ Acceptance

Deadline to accept offer (typically 5-7 days)
How to accept (signature and return)

📊 Stock Options vs. Restricted Stock

Aspect	Stock Options (ISOs/NSOs)	Restricted Stock (RSUs/Restricted Stock)
What is it?	Right to purchase shares at a fixed price (exercise price)	Actual shares granted (with restrictions)
Upfront cost	None (until you exercise)	May require payment if restricted stock (not RSUs)
Vesting	4 years with 1-year cliff	4 years with 1-year cliff
Taxation	Taxed when you exercise (ISOs = AMT, NSOs = ordinary income)	Taxed when shares vest (ordinary income)
Risk	Options can be worthless if company fails	Restricted stock has value even if stock price drops
Most common for	Startups (pre-IPO)	Public companies and late-stage startups

Most startups use stock options (ISOs for employees, NSOs for contractors).

📝 Offer Letter Template

Instructions for Customization

Replace all [BRACKETED TEXT] with your specific information
Choose equity type (ISOs for employees, NSOs for contractors/advisors)
Calculate number of options based on role and comp benchmarks
Set exercise price (typically current fair market value / 409A valuation)
Specify benefits available to the employee
Attach or reference the company's Equity Incentive Plan
Prepare a separate Stock Option Grant Agreement (sign after start date)
Have your attorney review before sending
Send via email or DocuSign for e-signature

EMPLOYMENT OFFER LETTER

[DATE]

[CANDIDATE NAME] [CANDIDATE ADDRESS] [CITY, STATE, ZIP CODE]

Dear [CANDIDATE FIRST NAME],

On behalf of [COMPANY NAME] (the "Company"), we are pleased to offer you the position of [JOB TITLE], reporting to [MANAGER NAME AND TITLE]. We believe your skills and experience will be a great addition to our team, and we are excited about the possibility of you joining us.

The terms of this offer are as follows:

1. POSITION AND RESPONSIBILITIES

Position: [JOB TITLE]

Reports To: [MANAGER NAME AND TITLE]

Responsibilities: Your primary responsibilities will include [BRIEFLY DESCRIBE KEY RESPONSIBILITIES, e.g., "leading product development, managing the engineering team, and defining technology strategy"].

Location: [CHOOSE ONE:]

Remote: You will work remotely from [STATE/COUNTRY]
Hybrid: You will work from our office at [OFFICE ADDRESS] [X] days per week, with flexibility to work remotely the remaining days
In-Office: You will work from our office at [OFFICE ADDRESS] full-time

Work Schedule: [Full-time / Part-time]. Full-time employees are expected to work approximately 40 hours per week, subject to the demands of the role.

Start Date: Your anticipated start date is [START DATE], or such other date as mutually agreed upon in writing.

2. COMPENSATION

Base Salary: Your annual base salary will be $[AMOUNT], paid in [bi-weekly / semi-monthly] installments in accordance with the Company's standard payroll practices, less applicable withholdings and deductions.

[IF HOURLY]: Your hourly rate will be $[AMOUNT] per hour, paid in [bi-weekly / semi-monthly] installments for all hours worked, in accordance with the Company's standard payroll practices, less applicable withholdings and deductions.

Classification: You will be classified as an [exempt / non-exempt] employee under the Fair Labor Standards Act (FLSA).

Exempt: You are not eligible for overtime pay.
Non-exempt: You are eligible for overtime pay at 1.5x your regular rate for hours worked over 40 in a workweek.

Performance Reviews: Your compensation will be reviewed annually, and adjustments may be made based on your performance and the Company's financial performance. However, the Company does not guarantee salary increases or bonuses.

3. EQUITY COMPENSATION

[OPTION 1: Stock Options (Most Common)]

Stock Option Grant: Subject to approval by the Company's Board of Directors, you will be granted an option to purchase [NUMBER] shares of the Company's Common Stock (the "Option"), which represents approximately [X]% of the Company's fully diluted capitalization as of [DATE].

Type of Options: [Incentive Stock Options (ISOs) / Non-Qualified Stock Options (NSOs)]

ISOs: May receive favorable tax treatment if certain holding period requirements are met (available only to employees)
NSOs: Taxed as ordinary income upon exercise (available to employees, contractors, and advisors)

Exercise Price: The exercise price (strike price) per share will be $[AMOUNT], which is equal to the fair market value of the Company's Common Stock as of the grant date, as determined by the Board of Directors (based on the Company's most recent 409A valuation).

Vesting Schedule: Your Option will vest over a 4-year period, subject to your continued service to the Company, as follows:

Cliff: No shares will vest during the first 12 months of your employment
Cliff Vesting: On the 1-year anniversary of your Vesting Commencement Date (defined below), 25% of the total Option shares will vest
Monthly Vesting: After the 1-year cliff, the remaining 75% of the Option shares will vest in 36 equal monthly installments

Vesting Commencement Date: [START DATE / OTHER DATE]

Example:

Total Option: 10,000 shares
After 12 months: 2,500 shares vest (25%)
Months 13-48: ~208 shares vest per month
After 48 months: All 10,000 shares fully vested

Termination of Vesting: If your employment is terminated for any reason, vesting will cease immediately as of your termination date. You will forfeit all unvested Option shares.

Post-Termination Exercise Period: If your employment terminates, you will generally have 90 days from your termination date to exercise any vested Option shares. If you do not exercise within this period, your vested Option shares will expire and be forfeited. (Note: The 90-day period may be extended in certain circumstances, as set forth in the Equity Incentive Plan and your Stock Option Agreement.)

Subject to Plan and Agreement: This Option grant is subject to the terms and conditions of the Company's [EQUITY PLAN NAME, e.g., "2024 Equity Incentive Plan"] (the "Plan") and a Stock Option Agreement, which you will be required to sign after your start date. Please review the Plan and Stock Option Agreement carefully, as they contain important terms, including vesting conditions, exercise procedures, and tax consequences.

409A Valuation: The exercise price is based on the Company's most recent 409A valuation dated [DATE]. The Company obtains 409A valuations annually (or more frequently if there are material events affecting valuation) to establish the fair market value of its Common Stock for purposes of stock option grants.

Tax Considerations: You should consult with your own tax advisor regarding the tax implications of receiving and exercising stock options, including Alternative Minimum Tax (AMT) for ISOs and ordinary income tax for NSOs.

[OPTION 2: Restricted Stock Units (Less Common for Early-Stage Startups)]

RSU Grant: Subject to approval by the Company's Board of Directors, you will be granted [NUMBER] Restricted Stock Units (RSUs), each representing the right to receive one share of the Company's Common Stock upon vesting.

Vesting Schedule: Your RSUs will vest over a 4-year period, subject to your continued service to the Company, with a 1-year cliff (25% after 12 months, then monthly vesting over the remaining 36 months).

Taxation: RSUs are taxed as ordinary income when they vest (not when granted). The Company will withhold applicable taxes at the time of vesting.

Subject to Plan and Agreement: This RSU grant is subject to the terms and conditions of the Company's Equity Incentive Plan and a Restricted Stock Unit Agreement, which you will be required to sign after your start date.

4. BENEFITS

You will be eligible to participate in the Company's employee benefit plans, subject to the terms and conditions of each plan. Current benefits include:

Health Insurance:

Medical insurance (Company pays [X]% of premiums for employee coverage)
Dental insurance (Company pays [X]% of premiums for employee coverage)
Vision insurance (Company pays [X]% of premiums for employee coverage)
[OPTIONAL: Dependent coverage available (employee pays [X]% of dependent premiums)]

Retirement:

401(k) plan (eligible after [X] months of employment)
[OPTIONAL: Company match of [X]% of employee contributions, up to [X]% of salary]

Paid Time Off (PTO):

[OPTION 1]: [X] days of PTO per year, accruing at a rate of [X] days per month
[OPTION 2]: Unlimited PTO (subject to manager approval and business needs)
[X] company holidays per year (as listed in the Employee Handbook)
[X] sick days per year (if separate from PTO)

Other Benefits:

Life insurance: [X]x annual salary (Company-paid)
Short-term disability insurance (Company-paid)
Long-term disability insurance (Company-paid)
[OPTIONAL: Commuter benefits, gym membership, professional development budget, etc.]

Benefit Eligibility: You will become eligible for benefits on [START DATE / FIRST DAY OF MONTH FOLLOWING START DATE / AFTER 30/60/90 DAYS]. Specific details about each benefit plan will be provided during your onboarding.

Changes to Benefits: The Company reserves the right to modify, amend, or terminate any benefit plan at any time, with or without notice, subject to applicable law and plan documents.

5. EMPLOYMENT RELATIONSHIP

At-Will Employment: Your employment with the Company is at-will, which means that either you or the Company may terminate the employment relationship at any time, with or without cause, and with or without advance notice. No one other than the [CEO / Board of Directors] has the authority to enter into any agreement for employment for a specified period or to make any representations or promises contrary to this at-will relationship, and any such agreement must be in writing and signed by the [CEO / Board of Directors].

No Employment Contract: This offer letter does not create an employment contract or guarantee employment for any specific duration. The at-will nature of your employment may not be changed except by a written agreement signed by you and an authorized representative of the Company.

Probationary Period: [OPTIONAL] The first [30/60/90] days of your employment will be considered a probationary period, during which the Company will evaluate your performance and fit with the Company. During this period, either party may terminate the employment relationship at any time, consistent with the at-will nature of your employment.

6. CONFIDENTIALITY, INTELLECTUAL PROPERTY, AND NON-SOLICITATION

As a condition of your employment, you will be required to sign the Company's Proprietary Information and Inventions Agreement (PIIA) [also known as Confidential Information and Invention Assignment Agreement (CIIAA)], which will be provided to you on or before your start date.

The PIIA includes, among other things:

(a) Confidentiality: You agree to protect the Company's confidential and proprietary information and not to disclose it to third parties or use it for any purpose other than your work for the Company.

(b) Assignment of Inventions: You agree to assign to the Company all inventions, discoveries, and other intellectual property that you create or develop during your employment that relate to the Company's business or result from your work for the Company.

(c) Non-Solicitation: You agree not to solicit the Company's employees, contractors, customers, or business partners for [12/18/24] months after your employment ends.

(d) [OPTIONAL] Non-Compete: You agree not to compete with the Company's business for [12/18/24] months after your employment ends in [GEOGRAPHIC AREA]. Note: Non-compete clauses are generally unenforceable in California and some other states. Consult your attorney.

Your employment is contingent upon your signing the PIIA on or before your start date.

7. OUTSIDE ACTIVITIES AND CONFLICTS OF INTEREST

Full-Time Commitment: You agree to devote your full business time, attention, and energies to the performance of your duties for the Company during your employment.

Outside Activities: You may engage in limited outside activities (e.g., angel investing, advisory roles, board service, speaking engagements, open-source contributions) provided that such activities:

Do not interfere with your duties and responsibilities to the Company
Do not create a conflict of interest with the Company's business
Are disclosed to and approved in advance by [YOUR MANAGER / CEO]

Conflict of Interest: You represent that you have no contractual commitments or other legal obligations that would prohibit you from performing your duties for the Company or that would conflict with the Company's interests.

Prior Employer Information: You agree not to bring to the Company, or use in your work for the Company, any confidential or proprietary information belonging to any prior employer or third party, unless you have written authorization to do so.

8. CONTINGENCIES

This offer is contingent upon the following:

(a) Background Check: Successful completion of a background check, including verification of employment history, education, and criminal record, in accordance with applicable law. You will be required to sign a background check authorization form.

(b) Right to Work: Completion of Form I-9 (Employment Eligibility Verification) and provision of acceptable documentation establishing your identity and eligibility to work in the United States, as required by federal law. Your employment may not commence until you have provided such documentation.

(c) Execution of Required Agreements: Signing and returning the following agreements on or before your start date:

Proprietary Information and Inventions Agreement (PIIA)
Stock Option Agreement (to be provided after Board approval of your Option grant)
[OPTIONAL: Employee Handbook Acknowledgment]
[OPTIONAL: Arbitration Agreement]

(d) Reference Checks: [OPTIONAL] Satisfactory completion of reference checks.

If any of these contingencies are not satisfied, the Company reserves the right to withdraw this offer or terminate your employment.

9. IMMIGRATION STATUS

[IF APPLICABLE FOR VISA SPONSORSHIP]

Visa Sponsorship: The Company [will / will not] sponsor you for a work visa ([H-1B / L-1 / O-1 / TN / other]). Your start date is contingent upon obtaining the necessary work authorization.

[IF NOT SPONSORING]: You must already have legal authorization to work in the United States for any employer. The Company will not sponsor work visas for this position.

10. OTHER TERMS

Entire Agreement: This offer letter, together with the PIIA, Stock Option Agreement, and Employee Handbook (once provided), constitutes the entire agreement between you and the Company regarding the terms of your employment and supersedes any prior agreements, representations, or understandings (whether written, oral, or implied).

Amendments: This offer letter may be amended or modified only by a written agreement signed by both you and an authorized representative of the Company.

Governing Law: This offer letter shall be governed by the laws of the State of [STATE], without regard to its conflict of laws principles.

Severability: If any provision of this offer letter is found to be invalid or unenforceable, the remaining provisions shall remain in full force and effect.

Survival: Sections 6 (Confidentiality, Intellectual Property, and Non-Solicitation), 7 (Outside Activities and Conflicts of Interest), and 10 (Other Terms) shall survive the termination of your employment.

11. ACCEPTANCE

We are excited about the prospect of you joining [COMPANY NAME] and believe you will make significant contributions to our team.

To accept this offer, please sign and return this letter by [ACCEPTANCE DEADLINE DATE, typically 5-7 days from offer date]. You may return the signed letter via email to [HR EMAIL] or via DocuSign.

If you have any questions about this offer or need clarification on any terms, please do not hesitate to contact me at [HIRING MANAGER EMAIL / HR EMAIL].

We look forward to welcoming you to the team!

Sincerely,

[HIRING MANAGER / CEO NAME] [TITLE] [COMPANY NAME] [EMAIL] [PHONE]

ACCEPTANCE

I, [CANDIDATE NAME], accept the terms of this offer letter and agree to commence employment with [COMPANY NAME] on [START DATE], subject to the terms and conditions set forth above.

I understand and agree that my employment is at-will and that this offer letter does not create an employment contract or guarantee employment for any specific duration.

I acknowledge that I have read and understood this offer letter and that I will sign the Proprietary Information and Inventions Agreement (PIIA), Stock Option Agreement, and any other required agreements on or before my start date.

Signature: ____________________________

Printed Name: ____________________________

Date: ____________________________

📥 Download This Template

[BUTTON: Download as PDF] [BUTTON: Download as Word Document] [BUTTON: Copy to Clipboard]

✅ Customization Checklist

Before sending your offer letter, ensure you've completed these steps:

[ ] Replace all [BRACKETED PLACEHOLDERS] with candidate and company information
[ ] Specify job title, reporting structure, and key responsibilities
[ ] Set base salary (check comp benchmarks for role and location)
[ ] Choose exempt or non-exempt classification (consult HR/legal)
[ ] Determine number of stock options (based on role level and equity budget)
[ ] Set exercise price (current 409A valuation / fair market value)
[ ] Specify vesting commencement date (typically start date)
[ ] List all benefits available to the employee
[ ] Specify benefits eligibility date (immediate or after waiting period)
[ ] Attach or reference the company's Equity Incentive Plan
[ ] Prepare Stock Option Grant Agreement (separate document, sign after start)
[ ] Prepare PIIA/CIIAA (separate document, sign on or before start date)
[ ] Set offer acceptance deadline (5-7 days is typical)
[ ] Have your attorney review (especially if deviating from standard terms)
[ ] Have CEO or authorized signatory sign the offer letter
[ ] Send via email or DocuSign for e-signature

🔍 Key Provisions Explained

1. At-Will Employment

Purpose: Clarifies that employment can be terminated by either party at any time, for any reason (or no reason), with or without notice.

Why it matters:

Protects the company's flexibility to terminate employees
Clarifies that the offer letter is not an employment contract
Standard for US employment (except Montana)

Exceptions:

Termination for illegal reasons (discrimination, retaliation) is prohibited
Implied contract exceptions (if employee handbook or other documents suggest guaranteed employment)
Public policy exceptions (e.g., whistleblower protections)

Best practice: Always include clear at-will language and avoid making promises about employment duration.

2. Equity Compensation (Stock Options)

Why stock options (not restricted stock)?

No upfront cost: Employees don't pay anything at grant (only when they exercise)
No immediate tax: No tax at grant (tax occurs at exercise and sale)
Upside potential: Employees benefit from company growth (options increase in value)

Key terms:

Number of shares: Based on role level, comp benchmarks, and equity budget
Exercise price: Current fair market value (409A valuation)
Vesting schedule: 4 years with 1-year cliff (industry standard)
Post-termination exercise period: 90 days (can be extended to 7-10 years for better employee outcomes)

ISOs vs. NSOs:

ISOs (Incentive Stock Options): Only for employees; favorable tax treatment (capital gains) if holding period met; subject to AMT
NSOs (Non-Qualified Stock Options): For employees, contractors, advisors; taxed as ordinary income at exercise

3. Vesting Schedule (4-Year with 1-Year Cliff)

Why a cliff?

Protects the company from employees who leave quickly
Ensures employees are committed for at least 1 year

Standard schedule:

Year 1: No vesting until 12-month anniversary
Month 12: 25% vests immediately (cliff vesting)
Months 13-48: Remaining 75% vests monthly (~2.08% per month)

Example:

Grant: 10,000 options
Leave after 6 months → 0 options vested
Leave after 12 months → 2,500 options vested (25%)
Leave after 24 months → 5,000 options vested (50%)
Leave after 48 months → 10,000 options vested (100%)

4. Post-Termination Exercise Period (90 Days)

Standard: 90 days to exercise vested options after termination

Problem: Many employees can't afford to exercise within 90 days and forfeit vested options.

Solution: Some startups extend the post-termination exercise period to:

7 years: Allows employees to wait until an IPO or acquisition to exercise
10 years: Full option term (but requires NSO treatment for tax purposes)

Considerations:

Extended exercise periods increase "option overhang" (options held by former employees)
May require NSO treatment (less favorable tax treatment)
Investors may push back on extended exercise periods

5. Exempt vs. Non-Exempt Classification

Exempt:

Salaried employees who are not eligible for overtime
Must meet FLSA duties test (executive, administrative, professional, computer, outside sales)
Must be paid at least $[58,656/year as of 2025 - check current federal threshold]

Non-Exempt:

Hourly employees who are eligible for overtime (1.5x regular rate for hours over 40/week)
Must track hours worked
Must be paid at least minimum wage

Misclassification risk: If you incorrectly classify an employee as exempt (when they should be non-exempt), you may owe back overtime pay, penalties, and legal fees.

When in doubt, consult an employment attorney.

6. Proprietary Information and Inventions Agreement (PIIA)

Why required: Protects the company's IP and confidential information.

Key provisions:

Confidentiality: Employee agrees to keep company information confidential
IP assignment: All work product created during employment belongs to the company
Non-solicitation: Employee agrees not to recruit away other employees or customers
[Optional] Non-compete: Employee agrees not to compete with the company (enforceability varies by state)

California exception: California Labor Code Section 2870 carves out inventions created entirely on employee's own time, without company resources, that don't relate to the company's business.

7. Benefits

What to include:

Health insurance: Medical, dental, vision (specify company contribution %)
Retirement: 401(k) with or without company match
PTO: Specify accrual rate or "unlimited PTO" policy
Holidays: List company holidays or refer to employee handbook
Other: Life insurance, disability, commuter benefits, professional development budget

Eligibility:

Immediate (start date)
First of month following start date
After 30/60/90 days

Changes: Reserve the right to modify or terminate benefits (subject to applicable law).

8. Contingencies

Standard contingencies:

Background check: Verify employment, education, criminal record (comply with FCRA and state laws)
I-9 verification: Verify eligibility to work in the US (required by federal law)
Signed agreements: PIIA, Stock Option Agreement, Employee Handbook Acknowledgment

If contingencies are not satisfied, the company may withdraw the offer or terminate employment.

💡 When to Use This Template

✅ Use this offer letter for:

Full-Time Employees
- Engineers, product managers, designers, marketers, sales, operations
- Early employees (employee #1-50)
- Mid-to-senior level hires
Employees Receiving Equity
- Stock options (most common)
- RSUs (for late-stage startups or public companies)
US-Based Employees
- Template is designed for US employment law
- May need modifications for other countries

❌ Don't use this offer letter for:

Contractors or Consultants (use a consulting agreement)
Advisors (use an advisor agreement)
Co-Founders (use a founder agreement with restricted stock, not options)
Interns (use an internship offer letter without equity)
International Employees (consult local counsel for country-specific requirements)

⚠️ Common Mistakes to Avoid

1. Promising Guaranteed Employment Duration

Problem: Language like "We look forward to a long and successful relationship" or "You'll be part of our team for years to come" can create an implied employment contract.

Solution: Always include clear at-will language and avoid making promises about employment duration.

2. Specifying Equity as a Percentage Without Clarifying Fully Diluted Shares

Problem: "You'll receive 1% of the company" is ambiguous. 1% of what? Current cap table? Fully diluted? Post-money?

Solution: Specify equity as a number of shares and approximate percentage of fully diluted capitalization as of a specific date.

Example: "10,000 shares, representing approximately 0.5% of the Company's fully diluted capitalization as of [DATE]"

3. Not Specifying Post-Termination Exercise Period

Problem: If you don't specify, most equity plans default to 90 days, which can result in forfeiture of vested options.

Solution: State the post-termination exercise period clearly (90 days is standard, but consider extending to 7-10 years for employee-friendly treatment).

4. Misclassifying Employees as Exempt

Problem: Incorrectly classifying a non-exempt employee as exempt to avoid paying overtime.

Solution: Review FLSA duties test and salary threshold. When in doubt, classify as non-exempt or consult an employment attorney.

5. Not Attaching or Referencing the Equity Plan

Problem: Offer letter mentions stock options but doesn't reference the Equity Incentive Plan or Stock Option Agreement.

Solution: Always state that the equity grant is "subject to the terms and conditions of the [Equity Plan Name] and a Stock Option Agreement" and provide copies for review.

6. Setting Offer Acceptance Deadline Too Short

Problem: Giving candidates only 24-48 hours to accept can feel like a pressure tactic and may backfire.

Solution: Allow 5-7 days for acceptance (or longer for senior hires who may need to negotiate).

7. Not Having Board Approval for Equity Grants

Problem: Promising equity before Board approval can create issues if the Board declines or modifies the grant.

Solution: State that equity is "subject to Board approval" and obtain Board approval before or shortly after the candidate accepts.

8. Using "Unlimited PTO" Without Clear Guidelines

Problem: "Unlimited PTO" sounds great but can result in employees taking less time off (due to ambiguity) or abusing the policy.

Solution: If offering unlimited PTO, provide clear guidelines:

Minimum recommended days off per year (e.g., 15 days)
Manager approval required
Blackout periods (e.g., end of quarter, product launches)
Reference employee handbook for details

📚 Related Resources

Promise Legal Resources

Proprietary Information and Inventions Agreement (PIIA) Template
Stock Option Grant Agreement Template (coming soon)
Employee Handbook Template (coming soon)
Early Employees Guide
Equity Compensation Overview
83(b) Election Guide
Founder Agreement Template

External Resources

💬 FAQs

Should I include a signing bonus?

It depends on your budget and the candidate's expectations.

Signing bonuses are common for:

Senior hires (VP level and above)
Candidates who need to relocate
Candidates leaving significant unvested equity at their current company

Typical range: $5K - $50K (higher for executive hires)

Clawback provision: Consider including a clawback if the employee leaves within the first 12 months.

Example: "If your employment is terminated by you or by the Company for Cause within 12 months of your start date, you agree to repay the signing bonus in full."

How much equity should I offer?

Equity varies by role, stage, and location. General guidelines:

Role	Equity (% of fully diluted)	Typical Range
First Engineer	0.5% - 2%	50,000 - 200,000 shares (at 10M shares outstanding)
Senior Engineer	0.1% - 0.5%	10,000 - 50,000 shares
VP Engineering	0.5% - 1.5%	50,000 - 150,000 shares
CTO (early employee)	1% - 3%	100,000 - 300,000 shares
Product Manager	0.1% - 0.5%	10,000 - 50,000 shares
Designer	0.1% - 0.3%	10,000 - 30,000 shares
Marketing/Sales	0.1% - 0.5%	10,000 - 50,000 shares

Use benchmarking tools: Carta, Pave, Option Impact, Holloway Guide to Equity Compensation

Should I disclose the current 409A valuation?

Yes, transparency is best. Employees should know:

Exercise price (strike price)
Current 409A valuation
Last funding round valuation (if applicable)
Number of shares outstanding (fully diluted)

Why? Allows employees to calculate the potential value of their options and make informed decisions.

What if the candidate negotiates equity?

Be prepared to negotiate.

Common requests:

More options
Higher exercise price (if candidate believes company is undervalued)
Extended post-termination exercise period (7-10 years instead of 90 days)
Acceleration provisions (single-trigger or double-trigger)

Budget for negotiations: Leave room to increase equity by 20-30% if needed.

Should I offer ISOs or NSOs?

For employees: ISOs (Incentive Stock Options)

Favorable tax treatment (capital gains instead of ordinary income) if holding period met
Subject to AMT (Alternative Minimum Tax)
Capped at $100K of fair market value vesting per year

For contractors/advisors: NSOs (Non-Qualified Stock Options)

No ISO eligibility restrictions
Taxed as ordinary income at exercise

Most startups grant ISOs to employees and NSOs to contractors/advisors.

Can I change the offer after the candidate accepts?

Generally, no. Once the candidate accepts, you have a binding agreement (even if employment is at-will).

Exceptions:

Contingencies are not satisfied (e.g., background check fails)
Material misrepresentation by the candidate
Mutual agreement to modify terms

Best practice: Finalize all terms before sending the offer.

How long should the offer be valid?

5-7 days is standard for most roles.

Longer for senior hires: 10-14 days (allows time for negotiation and decision-making)

Shorter for urgent hires: 3 days (if you need to fill the role immediately)

Avoid pressure tactics: Don't give candidates only 24 hours to decide unless there's a genuine business urgency.

What if I need to rescind an offer?

Rescinding an offer is risky and should be avoided if possible.

Valid reasons:

Candidate failed background check
Candidate misrepresented qualifications
Candidate doesn't have work authorization
Business circumstances changed dramatically (e.g., lost major funding, significant layoffs)

How to rescind:

Notify the candidate immediately via phone (followed by email)
Provide a clear, honest reason
Apologize for the inconvenience
Consider offering a consulting arrangement or severance (if appropriate)

Legal risk: Candidate may sue for promissory estoppel if they relied on the offer (e.g., quit their job, relocated).

Do I need to provide health insurance?

Depends on company size:

Affordable Care Act (ACA):

Companies with 50+ full-time equivalent employees must offer health insurance or pay a penalty
Insurance must be "affordable" (employee premium <9.12% of household income in 2025) and provide "minimum value" (covers at least 60% of costs)

Companies with <50 employees:

Not required to offer health insurance
Many startups offer health insurance to attract talent (even below 50 employees)

Typical startup practice: Offer health insurance once you have 5-10 employees.

🚀 Next Steps

Download this template (Word or PDF format)
Customize all sections with candidate and company information
Calculate equity grant based on role level and comp benchmarks
Verify classification (exempt vs. non-exempt) with HR or attorney
Prepare supporting documents:
- PIIA (Proprietary Information and Inventions Agreement)
- Stock Option Grant Agreement (to be signed after start)
- Employee Handbook (if available)
Obtain Board approval for equity grant (if required)
Have attorney review (especially for senior hires or non-standard terms)
Send offer via email or DocuSign
Set acceptance deadline (5-7 days)
Follow up if candidate has questions

📞 Need Help?

Drafting compliant offer letters with appropriate equity terms can be complex. Promise Legal offers offer letter review and equity compensation consulting for startups.

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This template is provided for informational purposes only and does not constitute legal advice. Consult with a qualified attorney before using this template.