Do More Faster India, 2nd Edition

Chapter 75To 83(b) or Not to 83(b), There Is No Question

Matt Galligan

Matt is a serial entrepreneur, having founded and been the CEO of Socialthing, SimpleGeo, Circa News, Picks & Shovels, and his latest venture, Interchange, a cryptocurrency portfolio management company. Matt was in the 2007 cohort of Techstars, where he worked on Socialthing, raised angel funding, and was acquired by AOL in 2008.

There are some documents that you’ll sign in the course of your life that are decidedly more important than others. Your marriage license, birth certificate of a child, and your will and testament are all perfect examples. But as a startup founder, you should add one more to your list of important documents to sign: the Section 83(b) election.

What is that, exactly? First, let’s step back and take a refresher course in restricted stock, as all startup founders should know exactly what this is and how it affects them. Specifically, restricted stock makes use of a vesting schedule that will cause your stock to be earned by you over time, rather than all at once. While entrepreneurs don’t ever start a company thinking that one of the cofounders would betray them, or maybe just not be quite up to snuff, it happens more often than expected. Because of that, restricted stock puts protections in place that allow the company to take back some of the stock that was granted to the founder in the first place if he doesn’t work out, or decides to leave the company voluntarily. Every startup ...