Founder equity and vesting: what "market" actually means
The convention for founder equity is four-year vesting with a one-year cliff and monthly vesting thereafter. If you have a repurchase right attached to that stock, the Section 83(b) election deadline is 30 days after the date the property was transferred — a statutory deadline, and one you should not learn about on day 31.
Everything else in this article is elaboration on those two sentences.
One framing point before we start. Vesting terms are contract, not statute. There is no law that sets four years or one year. "Market" here means the pattern that investors, acquirers, and their counsel recognize without friction. Deviating is allowed; deviating invisibly is what causes problems.
The tax rules, by contrast, are federal statute and regulation, and they are precise.
What vesting actually is
Founder stock is usually issued at formation, in full, at a nominal price. You own all of it immediately. What "vesting" adds is a company repurchase right over the unvested portion — if you stop providing services, the company can buy back the shares that have not yet vested, typically at the price you paid.
So the shares are yours. The company's right to take them back shrinks over time.
That distinction matters enormously for tax, which is the second half of this article.
Four years, one-year cliff
The standard shape: nothing vests for the first twelve months. At the twelve-month mark, 25% vests at once — the cliff. The remaining 75% vests in equal monthly increments over the following 36 months.
The cliff exists for one reason. The first year is when you find out whether a founding team is real. A cliff means someone who leaves in month seven leaves with nothing, rather than with a seventh of a founding stake.
The vesting commencement date is worth attention. It is often set to when the person actually started working, which can predate incorporation. That is a negotiated term, not an automatic one, and it should be stated explicitly in the stock purchase agreement.
Vesting protects founders from each other
Founders often experience vesting as something investors impose. That is backwards, or at least incomplete. The party most exposed to an unvested-equity problem is the co-founder who stays.
Consider the arithmetic. Two founders, fifty-fifty, no vesting. One leaves after five months. That person now owns half the company permanently, contributes nothing further, and holds a block that will dilute alongside yours through every future round. The person doing the work owns half of everything they build from here — and has to explain that cap table to every investor and every acquirer.
Vesting is the mechanism that returns that equity to the company. It is mutual: it applies to you on the same terms it applies to them. Agreeing to it before anyone knows who will leave is the only moment when the conversation is genuinely symmetrical.
Put it in place at formation. Retrofitting vesting later is a negotiation between people who now have very different information.
Acceleration: single trigger and double trigger
Acceleration provisions specify when unvested shares vest early. Two structures dominate the vocabulary.
Single trigger means a change of control alone accelerates vesting — the company is acquired, and some or all unvested equity vests on closing.
Double trigger means two conditions must occur: a change of control and a qualifying termination of the founder's service within a defined window after it, usually termination without cause or resignation for good reason.
The convention for founders is double trigger, typically covering some portion of unvested equity, often measured in months of additional vesting credit. The logic is straightforward from the buyer's side: acquirers are frequently buying a team, and a provision that fully vests the team at closing removes the retention they are paying for. Single-trigger acceleration is generally viewed as a term that complicates a transaction rather than one that is standard for founders.
The defined terms carry the weight. "Cause," "good reason," and "change of control" mean exactly what the document says they mean, and nothing more. A generous acceleration provision paired with a broad "cause" definition is not generous. Read those definitions with the same care you give the percentages.
State-specific note: The enforceability and mechanics of stock repurchase rights, and the treatment of a departing service provider generally, depend on the state whose law governs the entity and the agreement, and on applicable employment law. This article does not address the law of any state other than New York, or of Delaware except as to publicly stated corporate framework.
The 83(b) election, and its deadline
This is the part where the calendar is the whole ballgame.
Under Internal Revenue Code § 83(a), when property is transferred in connection with the performance of services, the excess of its fair market value over the amount paid is included in gross income "at the first time the rights of the person having the beneficial interest in such property are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier." Section 83(c)(1) defines a substantial risk of forfeiture as existing where rights to full enjoyment "are conditioned upon the future performance of substantial services."
Vesting-with-repurchase is exactly that condition. So the default rule measures your income as each tranche vests, at that tranche's then-current value.
For a company that is growing, this default is punishing. Value rises over four years; you are taxed on each slice at the higher later value; and unless you are selling stock, there is no cash arriving to pay the bill.
Section 83(b) offers an alternative: elect to include the value at the time of transfer instead. At formation, when the stock is newly issued at nominal value and you paid that nominal amount, the spread is typically zero or near zero.
Two further consequences follow from making the election. Under Treas. Reg. § 1.83-4(a), "the holding period of such property shall begin just after the date such property is transferred" — rather than at vesting. And future appreciation is not swept into ordinary compensation income at each vesting date.
The deadline
The statute is unambiguous. Section 83(b) provides that the election "shall be made not later than 30 days after the date of such transfer." The regulation at § 1.83-2(b) repeats it. The IRS's Form 15620, Section 83(b) Election, states it again: "An 83(b) election must be filed no later than 30 days after the date the property was transferred."
Thirty days from the transfer, not from the term sheet, not from the board meeting, not from year end, not from when you got around to signing the last signature page.
And it is durable in the wrong direction: § 83(b) provides that the election "may not be revoked except with the consent of the Secretary," and Form 15620 repeats that. Under § 1.83-2, consent is granted only for a mistake of fact about the underlying transaction — not for a mistaken valuation and not for changed circumstances.
Note the asymmetry with the S corporation election, which has a published relief path for late filings under Rev. Proc. 2013-30. Section 83(b) has a fixed statutory window.
Filing mechanics
Form 15620 directs you to submit the completed, signed form by mail to the IRS office where the person performing the services files a federal income tax return. It also states that the person performing the services "is also required to submit a copy of the completed and signed Form 15620 to the person for whom the services are performed" — meaning the company. Section 1.83-2 requires copies to the employer and any other transferee.
Practical discipline: mail it in a way that produces proof of the mailing date, keep the proof permanently, and give the company its copy the same week.
This is general tax information, not tax advice. Whether to make an 83(b) election, and what it means in your circumstances, is a question for a qualified tax advisor. Ask before the thirty days are running, not during.
What happens when a founder leaves unvested
Mechanically: the company exercises its repurchase right over the unvested shares, at the contract price, within the contract window. The vested portion generally stays with the departing founder. Those shares go back into the pool the company can redeploy.
On the tax side, § 1.83-2 addresses forfeiture of property for which an 83(b) election is in effect: it is treated as a sale or exchange, with a realized loss measured against the amount paid — which, on nominally priced founder stock, is a very small number. The income you previously reported is not recovered by deducting it. Confirm the treatment with your tax advisor; the point here is only that the election is a real decision with a real downside case, not a formality.
The part nobody plans for is the human part. Repurchase mechanics require someone to send a notice within a stated period, and it is common for a company in transition to simply miss that window. The right time to read your own repurchase provision is when everyone is still on good terms.
The short version
Put vesting in place at formation, on the same terms for everyone. Read the definitions, not just the percentages. Expect double trigger. And treat the 30-day 83(b) window as the hardest date on your calendar, because it is the one with no relief valve.
Sources:26 U.S.C. § 83 (Cornell LII) · 26 C.F.R. § 1.83-2 (Cornell LII) · 26 C.F.R. § 1.83-4 (Cornell LII) · IRS Form 15620, Section 83(b) Election · IRS — Update to the 2024 Publication 525 for Section 83(b) election · IRS — Instructions for Form 2553
This article is general information, not legal or tax advice, and does not create an attorney-client relationship. Vesting and acceleration terms described here are contractual market conventions, not legal requirements. Corporate law is state-specific; tax law is federal. Thony Law PLLC is admitted in New York only.