The 83(b) Election For Startup Founders

By Incorporation

If founders stock is issued subject to a vesting period, each founder should make a Section 83(b) election with the IRS within 30 days of purchasing the restricted stock. If a founder fails to make a 83(b) election, each vesting milestone will be a taxable event for the founder. “Income” will be calculated as the difference between the FMV of the portion of stock that vested and the original purchase price of the newly-vested portion.

Thus, failure to make an 83(b) election could leave the founder with a tax bill without experiencing a liquidity event.

The 83(b) election neutralizes this potential disastrous tax consequence, and the founder recognizes “income” upon the initial restricted stock purchase. This income is usually $0, as the initial restricted stock purchase price is usually made at FMV.


Startup Law doesn’t have to be a confusing maze. The practical knowledge in "Acceleration: What All Entrepreneurs Must Know About Startup Law" will help you make the smart decisions to protect your startup and its future. Available in ebook and hardcover.

Buy the Book on Amazon
You Might Also Like:  Series FF Stock: How Some Founders Get Liquid at Funding

Tagged under: