Stock Option Agreement (US)
This template is a standard agreement for granting stock options to individuals under a company's established stock plan. It includes provisions for both Incentive Stock Options (ISOs) for employees and Nonstatutory Stock Options (NSOs) for contractors or advisors, covering essential terms like vesting schedules, exercise prices, and tax implications.
STOCK OPTION AGREEMENT
Note: This template grants a stock option to an individual under a company stock plan. It supports both option types. An Incentive Stock Option (ISO) is the tax-advantaged form available only to employees and only if the requirements of Internal Revenue Code Section 422 are met. A Nonstatutory Stock Option (NSO) has no statutory limits and is used for contractors, advisors, non-employee directors, and for grants that exceed the ISO limits. Choose the type in Section 2 before completing anything else. Complete every yellow field and complete Exhibit A.
Note: This Agreement assumes the Company has adopted a written stock plan approved by its stockholders. Section 422(b)(1) requires an ISO to be granted under a plan that states the aggregate number of shares issuable and the class of employees eligible, and that was approved by stockholders within 12 months before or after adoption. An option granted without that plan cannot be an ISO.
This Stock Option Agreement (this "Agreement") is entered into as of [grant date] by and between [full legal name of the company], a [state of incorporation of the company] corporation (the "Company"), and [full name of the optionee] (the "Optionee").
RECITALS
WHEREAS, the Company maintains the [name of the stock plan] (the "Plan"), which has been approved by the stockholders of the Company; and
WHEREAS, the Company desires to grant to the Optionee an option to purchase shares of its common stock on the terms set forth in this Agreement and in the Plan;
NOW, THEREFORE, in consideration of the mutual covenants set forth below, the parties agree as follows:
1. GRANT OF OPTION
1.1 The Company hereby grants to the Optionee, effective as of the Grant Date, an option (the "Option") to purchase [number of option shares] shares of the Company's common stock (the "Shares") at the Exercise Price set forth in Section 3, subject to the terms of this Agreement and the Plan. In the event of any conflict between this Agreement and the Plan, the Plan controls.
2. TYPE OF OPTION
Note: Use either Option A or Option B.
Note: Use Option A if the Optionee is an employee of the Company or of a parent or subsidiary corporation and the Company wants to give tax-advantaged treatment. Use Option B if the Optionee is a contractor, advisor, or non-employee director, or if this grant would exceed the ISO limits. Section 422(b) permits an ISO to be granted only to an employee, so a grant to a non-employee is an NSO whatever the paperwork says.
Option A (Incentive Stock Option): The Option is intended to qualify as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). To the extent the Option fails to qualify as an incentive stock option for any reason, it will be treated as a nonstatutory stock option.
Option B (Nonstatutory Stock Option): The Option is a nonstatutory stock option and is not intended to qualify as an incentive stock option under Section 422 of the Code.
2.1 ISO annual limitation. If the Option is designated as an incentive stock option, then to the extent the aggregate fair market value, determined as of the Grant Date, of Shares with respect to which incentive stock options are exercisable for the first time by the Optionee during any calendar year exceeds $100,000, the portion of the Option in excess of that limit will be treated as a nonstatutory stock option.
Note: Section 422(d) caps incentive stock option treatment at $100,000 of stock, valued at the grant date, becoming exercisable for the first time in any one calendar year. Anything above that is automatically an NSO. This matters on a large grant with a heavy first-year vest, and it applies across all ISOs the Optionee holds from the Company, not just this one.
2.2 Ten percent stockholders. If, on the Grant Date, the Optionee owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation, then any incentive stock option granted under this Agreement must have an Exercise Price of at least 110 percent of the fair market value of a Share on the Grant Date and must expire no later than five years from the Grant Date.
Note: Section 422(c)(5) sets these two extra conditions for a ten percent stockholder. If either is missed, the option is not an ISO. Check the Optionee's holdings, including stock attributed from family members, before setting the Exercise Price and expiration date in Exhibit A.
3. EXERCISE PRICE
3.1 The exercise price is $[exercise price per share] per Share (the "Exercise Price"). The aggregate price payable on exercise of the entire Option is the Exercise Price multiplied by the number of Shares as to which the Option is exercised.
Note: Section 422(b)(4) requires an ISO exercise price to be no less than the fair market value of a Share on the Grant Date. For a private company, the board should set fair market value using a reasonable valuation method, and most companies obtain an independent appraisal for this purpose.
Note: Pricing below fair market value creates a Section 409A problem for an NSO. Where Section 409A applies and the requirements are not met, Section 409A(a)(1) requires the deferred compensation to be included in gross income, imposes an additional tax equal to 20 percent of that amount, and charges interest at the underpayment rate plus one percentage point. A stock option priced at or above fair market value on the grant date is generally structured to fall outside Section 409A, which is why the valuation is worth getting right before the grant rather than after.
4. VESTING
4.1 Vesting schedule. The Option becomes exercisable in accordance with the vesting schedule set forth in Exhibit A, subject to the Optionee's continuous service with the Company or a parent or subsidiary corporation through each vesting date.
Note: A four-year vesting schedule with a one-year cliff is the standard arrangement: 25 percent of the Shares vest on the first anniversary of the vesting commencement date, and the remainder vest in equal monthly installments over the following 36 months. Market-standard language: "25% of the Shares vest on the first anniversary of the Vesting Commencement Date, and 1/48th of the Shares vest monthly thereafter."
4.2 Acceleration. The Company may accelerate the vesting of all or part of the Option at any time by written notice to the Optionee. Any acceleration provided for in Exhibit A applies according to its terms.
Note: Single-trigger acceleration vests the Option on a change of control alone. Double-trigger acceleration requires both a change of control and a subsequent termination of the Optionee without cause within a stated window, commonly 12 months. Double-trigger is the more common arrangement for employees below the executive level, because acquirers prefer that key people remain incentivized after closing.
4.3 Early exercise. The Option may be exercised before the underlying Shares have vested only if Exhibit A expressly permits early exercise. Where early exercise is permitted, unvested Shares acquired on exercise are subject to a repurchase right in favor of the Company at the lower of the Exercise Price and the fair market value of the Shares on the date the Optionee's service terminates.
Note: CRITICAL: 83(b) Election 30-Day Deadline. If the Optionee early exercises and acquires Shares that are still subject to vesting, the Optionee should consult a tax advisor about filing an Internal Revenue Code Section 83(b) election with the IRS within 30 days of the exercise date. This deadline is strict: the IRS does not grant extensions or equitable exceptions. Missing the 30-day window means the Optionee will be taxed on the fair market value of the Shares at each vesting date rather than the value at exercise, which can result in a substantially higher ordinary income tax liability as the Company's value appreciates. The Optionee is solely responsible for making, or deciding not to make, an 83(b) election. The Company does not make this election on the Optionee's behalf. As of 2024, the IRS provides Form 15620 as a standardized 83(b) election form.
5. TERM AND EXPIRATION
5.1 The Option expires on [option expiration date], and may not be exercised after that date. The Option also expires earlier as provided in Section 7.
Note: Section 422(b)(3) requires an incentive stock option to be unexercisable after ten years from the Grant Date, reduced to five years for a ten percent stockholder under Section 422(c)(5). A ten-year term is standard for both ISOs and NSOs. Setting a longer term for an ISO disqualifies it.
6. EXERCISE OF THE OPTION
6.1 Method. The Option is exercised by delivering to the Company a completed notice of exercise in the form attached as Exhibit B, together with payment in full of the aggregate Exercise Price and any amount required under Section 9.3. Exercise is effective on the date the Company receives all of those items.
6.2 Payment. The Exercise Price may be paid in cash or by check, or by any other method the Company approves in writing, including a cashless exercise through a broker or the withholding of Shares otherwise issuable on exercise.
6.3 Partial exercise. The Option may be exercised as to fewer than all vested Shares. The balance remains exercisable in accordance with this Agreement.
6.4 Issuance. On valid exercise, the Company will issue the Shares to the Optionee and enter the Optionee on its books as the record holder, subject to Sections 10 and 13.
7. TERMINATION OF SERVICE
7.1 General. If the Optionee's service with the Company and all parent and subsidiary corporations terminates for any reason other than death, disability, or Cause, the Option, to the extent then vested, remains exercisable for [post-termination exercise period (days, e.g. 90)] days after the date of termination, and then expires. The unvested portion expires on the date of termination.
Note: Section 422(a)(2) requires the Optionee to have been an employee at all times from the Grant Date until three months before exercise for the option to keep incentive stock option treatment. A post-termination window longer than 90 days is increasingly common and is more generous to the Optionee, but any ISO exercised more than three months after employment ends is automatically taxed as an NSO. Extending the window is a deliberate trade of tax treatment for flexibility, not a free improvement.
7.2 Disability. If the Optionee's service terminates by reason of disability within the meaning of Section 22(e)(3) of the Code, the Option, to the extent then vested, remains exercisable for [disability exercise period (months, e.g. 12)] months after the date of termination, and then expires.
Note: Section 422(c)(6) extends the three-month rule in Section 422(a)(2) to one year where the Optionee is disabled within the meaning of Section 22(e)(3). A 12-month window therefore preserves incentive stock option treatment in the disability case.
7.3 Death. If the Optionee dies while in service, or during a period in which the Option remains exercisable under Section 7.1 or 7.2, the Option, to the extent then vested, may be exercised by the Optionee's estate or by the person who acquires the Option by will or the laws of descent and distribution for [death exercise period (months, e.g. 12)] months after the date of death, and then expires.
7.4 Cause. If the Optionee's service is terminated for Cause, the entire Option, whether or not vested, expires immediately on the date of termination. "Cause" has the meaning given in the Plan or, if the Plan does not define it, in the Optionee's written service agreement with the Company.
Note: Forfeiting vested options on a termination for cause is the standard position, and it makes the definition of Cause the operative term. Where Cause is defined broadly or is left to the board's sole discretion, an Optionee can lose value they have already earned. Check how the Plan defines Cause before signing.
8. TRANSFERABILITY
8.1 The Option is not transferable by the Optionee other than by will or the laws of descent and distribution, and during the Optionee's lifetime is exercisable only by the Optionee. Any attempt to transfer the Option in violation of this Section voids the Option.
Note: Section 422(b)(5) requires an incentive stock option to be non-transferable other than by will or the laws of descent and distribution. A transferable option cannot be an ISO.
9. TAX MATTERS
9.1 ISO holding periods. If the Option is an incentive stock option, favorable tax treatment on a later sale of the Shares requires that the Optionee not dispose of the Shares within two years after the Grant Date or within one year after the date the Shares are transferred to the Optionee on exercise. A disposition before either date is a disqualifying disposition and is taxed as ordinary income to the extent of the spread at exercise.
Note: The two holding periods in Section 422(a)(1) run from different dates and both must be satisfied. The two-year clock starts at grant and the one-year clock starts at exercise, so an Optionee who exercises late may still be inside the two-year period. The Optionee should tell the Company when a disqualifying disposition occurs, because the Company has reporting obligations.
9.2 Alternative minimum tax. Exercising an incentive stock option may create alternative minimum tax liability in the year of exercise even though no Shares are sold and no cash is received. The spread between the Exercise Price and the fair market value of the Shares at exercise is an adjustment item for alternative minimum tax purposes.
Note: This is the point option holders most often miss. Exercising and holding an ISO can produce a tax bill with no cash to pay it, particularly where the Shares cannot be sold because the Company is private. Model the alternative minimum tax exposure before exercising a large ISO.
9.3 Withholding. The Optionee is responsible for all taxes arising in connection with the Option. The Company may withhold from any amount payable to the Optionee, or require the Optionee to pay to the Company, any amount the Company is required to withhold. The Company is not obligated to issue any Shares until it has received that amount or is satisfied that arrangements for payment have been made.
9.4 No tax advice. The Company makes no representation or warranty as to the tax treatment of the Option or the Shares. The tax consequences depend on the Optionee's individual circumstances and on the law in effect at the relevant time.
10. SECURITIES LAW MATTERS
10.1 The Shares have not been registered under the Securities Act of 1933, as amended, and are issued in reliance on an exemption from registration. The Optionee represents that the Shares are being acquired for the Optionee's own account for investment and not with a view to distribution. The Company is not obligated to issue Shares unless the issuance complies with all applicable federal and state securities laws, and may place legends on the certificates or book entries representing the Shares.
Note: Private companies typically rely on Rule 701 under the Securities Act for compensatory equity grants. Rule 701(d) limits aggregate sales in any consecutive 12-month period to the greatest of $1,000,000, 15 percent of the issuer's total assets, or 15 percent of the outstanding amount of the class being sold. Rule 701(e) requires every investor to receive a copy of the plan or contract, and where aggregate sales exceed $10,000,000 in any 12-month period, the issuer must also deliver risk information and financial statements dated within 180 days. Confirm the Company remains within these limits before granting, and check the blue sky requirements of the states where Optionees are located.
11. RIGHTS AS A STOCKHOLDER
11.1 The Optionee has no rights as a stockholder with respect to any Shares subject to the Option until the Option has been exercised and the Shares issued. The Option carries no right to vote, to receive dividends, or to receive notice of stockholder meetings. No adjustment is made for a dividend or other right for which the record date precedes the date of issuance, except as provided in Section 12.
12. ADJUSTMENTS AND CORPORATE TRANSACTIONS
12.1 Capitalization adjustments. In the event of a stock split, reverse stock split, stock dividend, recapitalization, combination, reclassification, or similar change in the Company's capital structure, the number of Shares subject to the Option and the Exercise Price will be adjusted in the manner provided in the Plan.
12.2 Corporate transactions. In the event of a merger, consolidation, or sale of all or substantially all of the Company's assets, the Option will be treated in the manner provided in the Plan, which may include assumption or substitution by the surviving entity, acceleration of vesting, cash-out of the Option for the difference between the transaction consideration and the Exercise Price, or termination of the Option to the extent not exercised before the transaction closes.
Note: Where the transaction price is at or below the Exercise Price, an option can be cashed out for nothing. That is the ordinary result of an underwater option in a sale and is not a defect in the drafting, but Optionees are frequently surprised by it.
13. COMPANY RIGHTS IN THE SHARES
13.1 Right of first refusal. Before any Shares acquired on exercise may be transferred, the Optionee must first offer them to the Company on the terms set forth in the Plan or the Company's bylaws, to the extent such a right applies. This right terminates on the closing of the Company's initial public offering.
13.2 Market standoff. The Optionee agrees that, in connection with the Company's initial public offering, the Optionee will not sell or otherwise transfer any Shares for the period requested by the managing underwriters, not to exceed 180 days following the effective date of the registration statement.
13.3 Stockholder agreements. The Company may require the Optionee, as a condition of exercise, to become a party to any stockholders agreement, voting agreement, or right of first refusal and co-sale agreement then in effect among the Company's stockholders.
14. GENERAL PROVISIONS
14.1 No right to continued service. Nothing in this Agreement confers on the Optionee any right to continue in the service of the Company or any parent or subsidiary corporation, or interferes with the right of the Company to terminate that service at any time.
14.2 Entire agreement. This Agreement and the Plan constitute the entire agreement between the parties with respect to the Option and supersede all prior discussions and agreements relating to it. Nothing in this Section limits or excludes liability for fraud.
14.3 Amendment. This Agreement may be amended only by a written instrument signed by both parties, except that the Company may amend it unilaterally where the amendment does not materially impair the Optionee's rights or is necessary to comply with applicable law.
14.4 Notices. Notices under this Agreement must be in writing and delivered to the Company at its principal executive office, attention Corporate Secretary, and to the Optionee at the address on the Company's records or such other address as the Optionee designates in writing.
14.5 Severability. If any provision of this Agreement is held invalid or unenforceable, it will be modified to the minimum extent necessary to make it enforceable, or if that is not possible, severed, and the remaining provisions will continue in full force.
14.6 Governing law. This Agreement is governed by the laws of the State of [governing law state], without regard to its conflict of laws principles.
Note: Corporate law questions about the Shares themselves are governed by the state of incorporation, which is Delaware for most venture-backed companies, while the contractual terms of the Agreement are governed by the state chosen here. Companies commonly choose their state of incorporation for both so that a single body of law applies.
14.7 Counterparts and electronic signature. This Agreement may be executed in counterparts, each of which is an original and all of which together constitute one instrument. Signatures delivered electronically have the same effect as original signatures.
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS AGREEMENT
COMPANY
Signature:
Printed Name: [printed name of the company]
Title: [title of the company]
Date: [signature date of the company]
OPTIONEE
Signature:
Printed Name: [printed name of the optionee]
Title: [title of the optionee]
Date: [signature date of the optionee]
Note: The Optionee should sign a copy of the Plan or acknowledge receipt of it, because Section 701(e) of Rule 701 requires every participant to receive a copy of the compensatory plan or contract.
EXHIBIT A - KEY COMMERCIAL TERMS
Note: Complete this Exhibit before execution. In case of conflict with the terms above, this Exhibit prevails.
Part 1 - The Grant
Grant Date: [grant date]
Optionee: [full name of the optionee]
Company: [full legal name of the company]
State of incorporation: [state of incorporation of the company]
Plan: [name of the stock plan]
Number of Shares: [number of option shares]
Exercise Price per Share: [exercise price per share]
Option type chosen (Section 2): [option type chosen (a - incentive stock option, or b - nonstatutory stock option)]
Option Expiration Date (Section 5): [option expiration date]
Part 2 - Vesting
Vesting Commencement Date: [vesting commencement date]
Vesting schedule: [vesting schedule (e.g. 25% of the shares vest on the first anniversary of the vesting commencement date, and 1/48th of the shares vest monthly thereafter)]
Acceleration, if any: [acceleration terms (e.g. double-trigger: 100% acceleration on a change of control followed by termination without cause within 12 months, or state 'none')]
Early exercise permitted (Section 4.3): [early exercise permitted (state 'yes' or 'no')]
Part 3 - Post-Termination Exercise
General window (Section 7.1): [post-termination exercise period (days, e.g. 90)]
Disability window (Section 7.2): [disability exercise period (months, e.g. 12)]
Death window (Section 7.3): [death exercise period (months, e.g. 12)]
Part 4 - Other
Governing law (Section 14.6): [governing law state]
EXHIBIT B - NOTICE OF EXERCISE
To: [full legal name of the company], Attention: Corporate Secretary
The undersigned hereby exercises the option granted on [grant date] as to [number of shares being exercised] shares of common stock, and encloses payment of $[aggregate exercise price payable] representing the aggregate Exercise Price, together with any amount required under Section 9.3 of the Agreement.
The undersigned represents that the shares are being acquired for the undersigned's own account for investment and not with a view to distribution, and agrees to be bound by the Plan, this Agreement, and any stockholders agreement the Company requires under Section 13.3.
Signature: ................................... Date: [date of exercise notice]
5.0 out of 5 on Google
Read reviewsAs seen in
United States note
This version is drafted for US law generally. Contract, employment and consumer rules vary by state — for example on non-competes and at-will employment. Tell GitLaw which state applies and it adjusts the draft.
Frequently asked questions
A template isn't binding on its own - like any contract, it becomes binding once it's properly completed and signed. Templates in our curated library are professionally drafted for US or UK law; review any template before you sign it.
Yes. Chat with GitLaw to edit any section, or make changes directly in the editor.
Yes, read about team plans here.
Describe what you need in the chat and GitLaw will draft it for you.
Templates in our curated library are professionally drafted for US or UK law. The wider library comes from the GitLaw community and public sources - a solid starting point, but check any template fits your situation before you rely on it.
Mostly US and UK law. Some templates use general commercial terms that work across jurisdictions, and many note which law they're written for.
It depends on the situation. Templates work well for routine business agreements. For anything involving significant money, complex IP, employment, or areas you're unsure about, it's worth getting professional advice before you sign. GitLaw provides templates and tools, not legal advice.
Open any template in GitLaw and describe the change you want in the chat — 'make clause 4 mutual' or 'add a 30-day notice period', for example. GitLaw drafts the revised language and shows it as a suggested edit. You accept, reject, or keep editing from there.
Yes. Upload a Word, PDF, or Markdown file and GitLaw will open it in the editor. You can review, edit, or chat with GitLaw about it the same way you would with any template from the library.
Trusted by thousands of businesses
From template to signed, in one place
Every template opens in an editor with an AI agent alongside it.
Open
Pick a template and open it. Nothing to download, and no credit card to start.
Free to open
Edit with AI
Describe your situation in chat and the agent adapts the wording, clause by clause.
Tracked changes you can review
Send and sign
Share it for negotiation, then collect signatures without leaving GitLaw.
eSign included
Built for your legal work, with practicing lawyers
Trained on 5.5K+ clauses and specialist areas of law. Built with a standards committee of independent lawyers.
As seen in
Start free
No sales calls, no credit card. Just chat with GitLaw.
GitLaw provides templates and tools, not legal advice. Templates are a starting point, not a substitute for advice on your situation - for anything significant, speak to a qualified lawyer.