Employee equity that survives its own paperwork

What was broken

A growing fintech company wanted to introduce employee stock options to attract and retain senior talent, but had no scheme in place. The founders needed an ESOP that was legally sound, tax-aware for employees, and acceptable to future investors — not an informal promise that would unravel at the next round.

What we did

CapEasy designed the ESOP end to end — the scheme document and pool sizing, board and shareholder approvals, the grant, vesting, and exercise mechanics, and the statutory filings — while briefing the company on the tax treatment at grant, vesting, and exercise. The scheme was built to withstand investor diligence.

Where it landed

The company implemented a compliant, well-documented ESOP that it could offer to employees with confidence. The framework strengthened retention and stood up cleanly in subsequent investor conversations.

A US option pool is the same three artefacts, priced differently

Strip the jurisdiction away and an ESOP is always the same three things: a document that says the pool exists and how big it is, a paper trail proving each grant was actually approved, and a register that shows who holds what and when it vests. That is exactly what this engagement built for a fintech company — pool sizing, board and shareholder approvals, grant and vesting mechanics, statutory filings. A US company sets up the identical stack under a different statute: a stock plan reserving a pool from authorized shares, board (and often stockholder) approval of the plan, and individual grant agreements with vesting schedules attached to each hire. Delaware law requires the corporation to authorize stock option grants the same way it authorizes any other issuance — through board action recorded in the minutes, not a verbal offer in an offer letter.

The IRS then adds a layer the Indian scheme did not need: a statutory split between incentive stock options (ISOs) and nonstatutory (nonqualified) options. The IRS explains the difference plainly — an ISO carries no income-tax event at grant or exercise (though it can trigger alternative minimum tax), while a nonstatutory option without a readily determinable value is taxed at exercise on the spread between fair market value and the price paid. Getting that classification right, for every grant, is the ledger-level detail an ESOP scheme has to carry from day one.

The 409A valuation is the artefact a verbal option promise cannot produce

Every option grant needs an exercise price, and for a private company that price has to be defensible as fair market value under Internal Revenue Code Section 409A — the provision that governs nonqualified deferred compensation, including stock rights priced too low. Get the valuation wrong and the option can be reclassified as deferred compensation, triggering immediate income tax, a 20% additional tax, and interest for the employee who holds it — the exact opposite of the retention tool the pool was built for.

The way companies avoid that outcome is a written valuation report from a qualified, independent appraiser — commonly called a "409A valuation" — refreshed on the cadence the regulation requires or whenever a material event resets the company’s value (a priced round, a major new contract, a significant change in the business). The valuation itself is the CPA or valuation firm’s artefact, rendered against the company’s own books. CapEasy’s part is the ledger that valuer works from: reconciled financials, a current cap table, and a grant history that shows exactly when the pool was created and how much of it is already committed.

Grant paperwork and the Form 3921/3922 trail

Approval is only half the record — the exercise itself has to be reported. A corporation that transfers stock to an employee exercising an ISO must file Form 3921 for that transfer; a corporation whose employee stock purchase plan transfers shares below full value on the grant date files Form 3922. Both forms exist because the IRS needs the dates and values on record to determine whether a later sale is taxed as capital gain or ordinary income — which means the underlying grant date, exercise date, and price have to be correct and consistent with the option agreement long before a return is prepared.

That is the same discipline this engagement applied to the company registry filings and board minutes for the scheme: the grant, vesting, and exercise mechanics documented as they happen, not reconstructed from memory when a form is due. CapEasy’s part in a US company’s equity stack is exactly that — the grant register, the vesting schedule, the exercise data reconciled to the plan — prepared for the CPA who classifies the option, values it for 409A, and files the return.