1. Which Words in an Equity Offer Can Create Contract Risk?
A founder may recall a tentative conversation, while a new hire may have accepted the job expecting equity. Courts examine objective expressions of agreement and sufficiently definite terms. Whether the company authorized an option grant is a separate question.
How Specific Must an Offer Letter Be?
“Equity to be discussed later” leaves basic terms open. A detailed offer may create obligations before anyone prepares the award documents. The language and the surrounding exchanges matter more than the document title.
- Identify the award type and amount or calculation method.
- State when the promise becomes effective and what approvals remain.
- Specify vesting and what happens if employment ends.
Can Emails or Spoken Promises Matter?
Emails may help establish an agreement if they show definite terms and the necessary assent. General Obligations Law § 5-701 requires a signed writing for certain promises, including agreements that cannot, by their terms, be performed within one year. Not every oral employment promise falls within that rule.
| Communication | Issue to Examine |
|---|---|
| Recruiting email | Did both sides agree on material terms? |
| Offer letter | Is the equity promise conditional? |
| Verbal discussion | What evidence shows the promise and its terms? |
2. Why Does Worker Status Change the Equity Discussion?
Labeling a new hire a consultant does not settle their employment status. State labor rules examine how the person actually works, including supervision and control. Federal Rule 701 separately governs eligibility for certain compensatory securities offerings.
What Changes between an Employee and a Consultant?
The company should spell out the work, compensation, and reporting relationships. Actual working conditions matter more than a contract label. Review startup incorporation records to identify the entity offering equity.
- Identify the contracting employer or client company.
- Describe services, cash compensation, and equity expectations.
- Check how the company directs the person's work.
Does Rule 701 Cover Both Groups?
Federal Rule 701 may exempt qualifying securities offered under a written compensatory plan or contract by an eligible non-reporting issuer. Consultants must be individuals providing bona fide services unrelated to capital raising or promoting a securities market.
| Recipient | Federal Review |
|---|---|
| Employee | Written compensatory plan or contract and issuer eligibility. |
| Consultant | Qualifying services and additional recipient restrictions. |
3. What If a Founder Promised Options without Approval?
A founder may promise options before the company has authorized a grant. The governing documents and law of the state of incorporation determine the required corporate approvals. Missing approval does not automatically settle a separate contract claim.
Which Records Reveal the Approval Gap?
A recruiting email may say “approved” when the board minutes say nothing. An attorney can compare the messages with corporate governance documents and equity records to distinguish negotiation authority from grant authority.
- Check board minutes and approval conditions.
- Compare the promised award with the option plan.
- Confirm who had authority to speak for the company.
How Should the Company Address Conflicting Terms?
When memories differ, preserve the original messages before proposing changes. A revised document should state what the parties now agree to and which approvals remain, without rewriting the history of the offer.
- Separate the original promise from a proposed amendment.
- Confirm the employee's understanding in writing.
- Avoid describing an unapproved award as already granted.
4. Why Do Unresolved Equity Promises Matter during Fundraising?
Investors may ask why an employee expects options that do not appear in the capitalization table. An unresolved promise can complicate diligence even if no award was issued. Compare recruiting records with ownership disclosures before startup financing.
Where Can a Cap Table Miss a Commitment?
A cap table can accurately show issued shares yet miss a promise buried in an old email. Check the correspondence before presenting ownership figures.
- List outstanding awards and unfulfilled equity promises separately.
- Compare written commitments with the option reserve.
- Flag disputed or conditional terms for review.
What Should Be Resolved before Investor Diligence?
Before diligence, compare recruiting communications with proposed investor disclosures. Review equity and debt financing documents against unresolved commitments rather than treating silence as a release.
- Identify promises that require clarification or negotiation.
- Update records after authorized decisions occur.
- Disclose material commitments as required by the transaction.
5. Frequently Asked Questions
Can employee stock options replace minimum wages?
Generally, no. Equity compensation does not ordinarily satisfy minimum wage or overtime obligations. New York Labor Law § 195(1) also requires employers to give covered employees written pay notices at hiring.
Does an 83(b) election apply when an employee receives an option?
Generally, no. An election under federal Internal Revenue Code § 83(b) can become relevant when the employee acquires substantially nonvested stock, including through an eligible early exercise.
Does a 409A valuation prove an equity promise was enforceable?
No. A Section 409A valuation concerns federal tax-related pricing, not whether the parties agreed on definite terms or had authority to commit the company.
6. Review an Employee Equity Promise with Sjkp
An employee may make a career decision based on language the founder considered preliminary. Before changing an offer, examine the original words, the speaker’s authority, and any outstanding conditions. SJKP’s attorneys can review the relevant contract, corporate, and federal securities issues.
Contact SJKP with the offer letter, recruiting messages, and available approval records to evaluate the next legal steps.
19 Mar, 2026
