Notice of Grant of Stock Option Template

In plain language: Identifies the document as a formal notice, names the company, states the recipient's name and role, and assigns a unique grant number for tracking.

Common mistake: Omitting the grant number — without one, tracking multiple grants per recipient in your cap table or equity platform becomes error-prone and creates audit risk.

In plain language: States the official grant date on which the award was authorized by the board and specifies whether the option is an ISO or NSO.

Common mistake: Using the date the notice is delivered rather than the board approval date as the grant date — the two can differ by days or weeks, affecting the exercise price and tax treatment.

In plain language: Specifies the exact number of shares covered by the option and the per-share exercise price, which must equal or exceed FMV on the grant date.

Common mistake: Setting the exercise price below FMV on the grant date — even by a small amount — creates immediate IRC §409A violations and significant tax penalties for the recipient.

In plain language: Details how and when the option becomes exercisable — the cliff period, the vesting frequency, and the full vesting date.

Common mistake: Stating a vesting schedule that differs from the underlying option agreement — the two documents must match exactly or the discrepancy creates a dispute about which controls.

In plain language: States the date on which the option expires if not exercised and the maximum term of the grant.

Common mistake: Failing to note early-termination triggers — most plans accelerate expiration to 90 days after employment ends, and recipients who are not told this are often caught off guard.

In plain language: Incorporates the company's equity incentive plan by reference, making the plan's full terms binding on the recipient without reprinting them in the notice.

Common mistake: Referencing a plan version that is outdated or has not yet received board approval — always confirm the plan is current and in effect on the grant date.

In plain language: Directs the recipient to the separate stock option agreement that contains the full legal terms governing exercise, transferability, and termination.

Common mistake: Issuing the grant notice without the accompanying award agreement — the notice alone does not contain sufficient terms for enforcement and leaves the company exposed if the recipient disputes exercise conditions.

In plain language: Tells the recipient how to formally accept the grant — by countersignature, electronic acknowledgment, or through the company's equity platform.

Common mistake: Setting an acceptance deadline that is too short — granting two weeks rather than 30 days is adequate for most employees, but recipients who miss the window may assume the grant lapses when it does not.

In plain language: Identifies the authorized company representative whose signature confirms the board has approved the grant and the company is bound.

Common mistake: Having someone sign who is not authorized by the board resolution approving the grant — an unauthorized signatory can cloud the enforceability of the entire notice.

A notice of grant of stock option is a formal written communication a company sends to an employee, director, or service provider confirming that the board has approved an equity award. It states the grant date, option type, number of shares, exercise price, vesting schedule, and expiration date, and directs the recipient to the full award agreement that governs exercise and termination. It creates an official record for both the company and the recipient.

An ISO (Incentive Stock Option) qualifies for favorable US tax treatment under IRC §422 — the recipient pays no ordinary income tax at exercise and may qualify for long-term capital gains rates if holding period requirements are met. ISOs can only be granted to employees. An NSO (Non-Qualified Stock Option) does not qualify for those benefits; the spread between the exercise price and FMV at exercise is taxed as ordinary income. NSOs can be granted to employees, directors, and consultants.

The grant date establishes the exercise price — which must equal or exceed FMV on that date — and starts the vesting clock. Using the wrong date, even by a few days, can result in a below-FMV exercise price that triggers IRC §409A penalties for the recipient, misstatement of stock-based compensation expense under ASC 718, and potential securities law issues. Always use the board approval date, not the date the notice is printed or delivered.

Many equity plans require the recipient to formally accept the grant within a set period — typically 30 to 60 days. Acceptance is usually done by countersigning the notice or clicking an acceptance button on an equity platform. If the recipient fails to accept, most plans treat the option as either forfeited or still outstanding, depending on plan terms. Check your governing plan and state the acceptance method clearly in the notice.

A 409A valuation is an independent appraisal of a private company's common stock fair market value, required under IRC §409A before granting stock options. It provides a defensible exercise price for tax purposes. Without a current 409A valuation, the IRS can recharacterize options as deferred compensation and impose a 20% excise tax plus interest on recipients. Most 409A valuations are valid for 12 months or until a material event changes the company's value.

Unvested options are typically forfeited on the date the employment relationship ends, reverting to the company's option pool. Vested but unexercised options usually must be exercised within 90 days of termination (for ISOs) or the period specified in the award agreement. Options not exercised within that window expire worthless. Some companies extend post-termination exercise windows to one or more years — check your plan terms and state them plainly in the notice.

No. The grant notice is a short summary document confirming the key terms of the award. The stock option agreement is the full legal contract that governs how, when, and under what conditions the option may be exercised, transferred, or terminated. Both documents work together — the notice references the agreement, and the agreement incorporates the equity incentive plan. Never issue a grant notice without also delivering the full award agreement.

Yes, but only as NSOs. ISO treatment is limited to employees on the company's payroll. Contractors, advisors, and board members can receive NSOs, which carry the same economic upside but result in ordinary income taxation at exercise. Some equity plans exclude non-employees entirely — check your plan's eligibility provisions before issuing a notice to a non-employee.

The standard option term is 10 years from the grant date. ISOs granted to shareholders who own more than 10% of the company's voting stock are limited to a 7-year term. Options typically expire earlier upon termination — often 90 days after the employment relationship ends for ISOs, or a period specified in the plan for NSOs. The grant notice should state the full expiration date and note any earlier termination triggers.