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. Capitalized terms used but not defined in this Agreement have the meanings given in the Plan. "Code" means the Internal Revenue Code of 1986, as amended. References to a "parent" or "subsidiary" corporation mean a parent corporation or subsidiary corporation within the meaning of Sections 424(e) and 424(f) of the Code, and "fair market value" means the fair market value of a Share as determined by the Company's Board of Directors (or its authorized committee) in accordance with the Plan and Section 409A of the Code.
2. TYPE OF OPTION
The Option is designated in Exhibit A, Part 1, as either an incentive stock option (Option A) or a nonstatutory stock option (Option B). Only the alternative so designated applies, and Sections 2.1, 2.2, 9.1 and 9.2 apply only if the Option is designated an incentive stock option.
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About this template
What is this template?
This document is a formal grant of equity rights to an individual and is not a direct share issuance or a simple employment contract. It contains specific fallback language that converts Incentive Stock Options into Nonstatutory Stock Options if the $100,000 annual limit or the 110% exercise price requirement for ten percent stockholders is not met.
When should you use it?
Use this when granting compensatory equity to US-based service providers under a board-approved written stock plan. Use a Restricted Stock Purchase Agreement (RSPA) instead if the shares are being issued immediately rather than via an option to purchase in the future.
What's inside
| Clause | Name | What it does |
|---|---|---|
| 1 | Grant of Option | Grants the Optionee an option to purchase a specific number of Shares effective as of the Grant Date. |
| 2.1 | ISO Annual Limitation | Limits ISO treatment to $100,000 of stock becoming exercisable in any calendar year, treating any excess as an NSO. |
| 4.1 | Vesting Schedule | Conditions the exercise of the option on continuous service with the Company or its subsidiaries according to Exhibit A. |
| 4.3 | Early Exercise | Permits exercise before vesting only if expressly authorized, granting the Company a 90-day repurchase right upon termination of service. |
| 7.1 | Termination of Service | Limits post-termination exercise to a stated number of days, defaulting to 90 days for most termination types. |
| 9.1 | ISO Holding Periods | Requires Optionees to notify the Company within 15 days of any disqualifying disposition within specific two-year or one-year periods. |
| 10.1 | Securities Law Matters | Identifies the Shares as restricted securities and notes the Company's intent to rely on Rule 701 under the Securities Act. |
| 13.2 | Market Standoff | Prohibits the sale of Shares for up to 180 days following the effective date of a registration statement for an IPO. |
Who it's for
- a US corporation granting equity to an employee under a Section 422 plan
- a consultant receiving nonstatutory stock options from a venture-backed startup
- an employee performing an early exercise and filing a Section 83(b) election
How long it runs and how it's signed
Law it's drafted under
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.
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