Fundraising
Founder Shares
Quick definition
Common stock issued to the founders at formation, usually for nominal consideration; subject to reverse vesting and a §83(b) election.
Founder shares are typically issued at incorporation for fractions of a penny per share. Subject to reverse vesting (the company can buy back unvested shares if a founder leaves) and almost always requires a Section 83(b) election filed within 30 days to lock in tax treatment at the (near-zero) grant date FMV rather than at vesting. Critical: file the §83(b) on time, because missing the 30-day window can cost millions in future taxes.
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Frequently asked questions
- What is Founder Shares?
- Founder shares are typically issued at incorporation for fractions of a penny per share. Subject to reverse vesting (the company can buy back unvested shares if a founder leaves) and almost always requires a Section 83(b) election filed within 30 days to lock in tax treatment at the (near-zero) grant date FMV rather than at vesting. Critical: file the §83(b) on time, because missing the 30-day window can cost millions in future taxes.
- Why is Founder Shares important for startups?
- Founder Shares is a fundraising concept that matters for startup founders because it shows up in fundraising readiness, financial decision-making, and operational discipline at the stage where mistakes are expensive to undo. Founders who understand it are better prepared for diligence, board meetings, and investor conversations.
- What category does Founder Shares belong to?
- Founder Shares is a Fundraising term in the StartupCFO finance glossary, alongside other fundraising concepts that founders, CFOs, and accountants use in startup operations and reporting.
- Where can I learn more about Founder Shares?
- Beyond this definition, see the related fundraising terms below, or explore StartupCFO's insights and tools that put Founder Shares in context. For specific situations, talk to a fractional CFO who can walk through your numbers.
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