A stock option is a contractual right granted by a company to an employee, advisor, or service provider to purchase a defined number of shares at a predetermined price (the “exercise price” or “strike price”) within a defined exercise window. Options are the primary mechanism by which startups compensate talent with equity participation while preserving cash.
The two principal U.S. option types are Incentive Stock Options (ISOs) — limited to employees, offering favorable long-term capital-gains treatment if specific holding-period and statutory limits are met — and Non-Qualified Stock Options (NSOs) — available to employees, advisors, contractors, and directors, taxed as ordinary income at exercise on the spread between exercise price and fair market value.
Core option terms include: strike price (typically set at fair market value on grant date, established by 409A valuation for U.S. private companies); vesting schedule (standard 4-year vesting with 1-year cliff); exercise window post-termination (commonly 90 days, increasingly extended to 5–10 years in talent-competitive markets); acceleration provisions (single- or double-trigger on change of control); and option pool reserve (the company-wide allocation typically sized at 10–20% of fully diluted equity at Series A).
For Turkish founders post flip-up, transitioning from Turkish stock-option arrangements to U.S. ISO/NSO frameworks requires careful handling. Pre-flip Turkish option grants may need re-issuance under U.S. plans, with attendant 409A valuation, plan adoption, and exercise-price determinations. Employees should file Section 83(b) elections within 30 days of restricted-stock grants and understand the tax timing of NSO exercise.
Vircon Legal advises founders, employees, and HR teams on stock option plan design, ISO vs. NSO architecture, 409A timing, Section 83(b) elections, post-termination exercise window negotiation, and the post-flip-up coordination of Turkish and U.S. equity-compensation structures.