Fundraising
Section 83(b) Election
Quick definition
IRS filing within 30 days of receiving restricted stock that elects to pay tax upfront at the (low) grant FMV rather than at vesting.
When founders or early employees receive restricted stock (subject to reverse vesting), the default tax treatment recognizes income at each vesting event at the then-current FMV — potentially massive ordinary-income hits as the company appreciates. A Section 83(b) election filed with the IRS within 30 days of issuance lets you pay tax NOW on the entire grant at the (typically negligible) initial FMV. Critical for founders: missing the 30-day window costs millions later. No extensions allowed.
Related fundraising terms
SAFE (Simple Agreement for Future Equity)
Convertible instrument commonly used for early-stage rounds.
409A Valuation
Independent valuation of common stock used to set option strike prices.
Cap Table
A record of all ownership interests in your company.
Pro Rata Right
An investor's right to maintain their ownership % in future rounds.
Frequently asked questions
- What is Section 83(b) Election?
- When founders or early employees receive restricted stock (subject to reverse vesting), the default tax treatment recognizes income at each vesting event at the then-current FMV — potentially massive ordinary-income hits as the company appreciates. A Section 83(b) election filed with the IRS within 30 days of issuance lets you pay tax NOW on the entire grant at the (typically negligible) initial FMV. Critical for founders: missing the 30-day window costs millions later. No extensions allowed.
- Why is Section 83(b) Election important for startups?
- Section 83(b) Election is a fundraising concept that matters for startup founders because it directly affects fundraising readiness, financial decision-making, or operational discipline at the stage where mistakes are expensive to undo. Founders who understand it have a meaningfully easier time in diligence, board meetings, and investor conversations.
- What category does Section 83(b) Election belong to?
- Section 83(b) Election is a Fundraising term in the StartupCFO finance glossary — alongside other fundraising concepts that founders, CFOs, and accountants use in daily startup operations and reporting.
- Where can I learn more about Section 83(b) Election?
- Beyond this definition, see the related fundraising terms below, or explore StartupCFO's insights and tools that put Section 83(b) Election in context. For specific situations, talk to a fractional CFO who can walk through your numbers.
Got a finance question that needs more than a definition?
Talk to a real CFO. 30 minutes, no contract, free.
