How do I issue stock options to employees?

To issue stock options, your company needs an equity incentive plan (also called a stock option plan) approved by your board of directors.

The plan defines the total option pool size, vesting terms, exercise price methodology, and eligibility. For each grant, your board passes a resolution specifying the recipient, number of options, exercise price (must be at or above fair market value per IRC 409A), and vesting schedule (typically four years with a one-year cliff). You then deliver a stock option agreement to the recipient for signature. The exercise price requires a 409A valuation, which is a formal appraisal of your company's common stock fair market value. Early-stage startups can use the safe harbor methods. Lovie connects founders with 409A valuation providers as part of its post-formation compliance tools.