Startup promised me 2% equity as employee #3 but never issued the shares - company just got acquired

I joined a startup in 2022 as employee #3. During negotiations, the CEO verbally promised me 2% equity and sent an email confirming "2% equity stake vesting over 4 years." I accepted a below-market salary of $85k (market rate was $130k+) specifically because of this equity promise.

I worked there for 3 years, helped build the product from scratch. The company was just acquired for $40M.

Here's the problem: they never actually issued me any stock options or shares. No option agreement, no 409A valuation, nothing. Now the CEO is saying the equity "was never formalized" and I'm not entitled to anything from the acquisition.

I have the email promising 2% equity. Is this enforceable? What are my legal options? I'm in California and the company is a Delaware C-corp.

Startup/VC attorney here. This is unfortunately more common than it should be. The good news: you have that email, and California has strong protections for situations like this.

You potentially have several claims:

• Breach of contract: The email could constitute a written agreement or evidence of an oral contract
• Promissory estoppel: You relied on the promise to your detriment by accepting below-market salary
• Fraud/misrepresentation: If they never intended to issue the shares
• Unjust enrichment: They benefited from your labor without providing promised compensation

The fact that they never did a 409A valuation or issued formal option agreements doesn't mean you have no rights - it means they failed to fulfill their obligations.

This is why EVERYONE needs to get equity agreements in writing with proper documentation before starting work. I'm a founder myself and I would never promise equity without immediately following up with paperwork from our lawyers.

That said, the CEO here is in the wrong. An email promising 2% equity is pretty clear, even if the formal docs were never done. The CEO was responsible for handling that paperwork, not you.

@StartupLawyer_SV thank you, that's helpful. A few follow-up questions:

1. What's the statute of limitations on these claims? I'm worried I waited too long.

2. Is it worth trying to settle directly with the CEO or should I go straight to a lawyer?

3. The acquisition is supposed to close in 30 days - does that change anything?

I went through almost this identical situation last year. Different company, same story - promised equity, never formalized, acquisition happened.

Here's what worked for me: I got a lawyer, sent a demand letter threatening to file suit and potentially hold up the acquisition closing. The acquiring company does NOT want litigation clouds on a deal - it creates risk and complicates their due diligence.

They settled for about 60% of what I was owed to make it go away quickly. Not ideal but better than nothing and way faster than litigation.

To answer your questions:

1. Statute of limitations: In California, breach of written contract is 4 years, oral contract is 2 years. Fraud is 3 years from discovery. Since the acquisition just happened and that's when you discovered you weren't getting anything, you should be within the window. But act quickly.

2. Direct settlement vs lawyer: Given the amount at stake (2% of $40M = $800,000), you absolutely need a lawyer. This is not a DIY situation. Look for attorneys who specialize in startup equity disputes - some work on contingency for cases like this.

3. The 30-day timeline: This is actually leverage in your favor. @ExitVictim2023 is right - acquirers hate pending litigation. A well-timed demand letter could accelerate settlement discussions significantly.

Former startup CFO here. Quick reality check: 2% of $40M is $800K on paper, but you need to understand the cap table dynamics. If they raised money, there's likely been dilution. Your 2% might be worth less depending on share class and preferences.

More importantly - in most acquisitions, common shareholders (which is what your options would have converted to) often get paid last after preferred shareholders and debt. Depending on deal structure, 2% of common might not actually be worth $800K.

None of this means you don't have a claim. Just want you to have realistic expectations when negotiating.

@TechCFO_retired good point. I know they raised a Series A ($5M at $20M valuation) and Series B ($12M at $50M valuation). So yeah, there's been dilution. I'm guessing my 2% would have been diluted to maybe 1.2-1.5% by now?

Also just found another email where the CEO said "your equity will be options, we'll get the paperwork done once we close the seed round." That was in 2022. They closed the seed round and still never did the paperwork.

Work in VC and see stuff like this occasionally during due diligence. The acquiring company's lawyers will 100% find this if you assert your claim. They'll see the email chain, see no corresponding option grant in the cap table, and flag it as a risk.

Smart acquirers will either require the seller to resolve it pre-close or set aside escrow funds for potential claims. Either way, making noise now while the deal is pending gives you leverage.

Since the company is a Delaware C-corp, Delaware law will govern corporate matters. But your employment claims (promissory estoppel, fraud) would likely be governed by California law since that's where you worked.

California is generally more employee-friendly. Also worth noting: California Labor Code Section 2751 requires employers to put commission/bonus agreements in writing. Equity compensation might fall under similar protections.

That second email is gold. "We'll get the paperwork done once we close the seed round" is an explicit acknowledgment of the obligation and a promise to formalize it. They closed the round and didn't follow through - that's breach.

Gather all documentation: offer letter, all emails mentioning equity, any Slack messages, any witnesses who heard discussions about your equity. Build your evidence file before reaching out to a lawyer - it'll save you money on legal fees.

Not a lawyer, but I had a similar situation that resolved differently. In my case, the CEO genuinely forgot to do the paperwork (small team, no HR, things slip through cracks). When I raised it, they immediately issued me backdated options.

Have you tried having a direct conversation with the CEO before going legal? Sometimes it's honest incompetence, not malice. Obviously if they refuse, then lawyer up.

@SarahK_startup I did try talking to him first. His exact words were "look, we never got around to the paperwork, so legally you don't have any claim to equity. Sorry, but that's just how it is." He was pretty dismissive about it.

I've started reaching out to attorneys. Found a few who specialize in startup equity disputes. One is offering a free consultation tomorrow.

"Legally you don't have any claim" - that's nonsense and he knows it. The email IS the legal claim. He's just hoping you'll give up.

Good luck with the attorney consultation. Make sure to ask about contingency fee arrangements - many employment lawyers will take strong cases like this on contingency (they get paid only if you win/settle).

What if I never signed a stock option agreement but did sign an offer letter that mentioned equity? My offer letter says "eligible for stock options representing 0.5% of the company" but then I never got actual option docs. Different situation or same?

@not_a_robot_123 Similar situation, potentially stronger claim. A signed offer letter with specific equity terms is more formal than an email. The language "eligible for" is a bit weaker than "will receive" but still shows intent and promise.

Key questions: Did you accept the offer? Did you rely on that equity promise when accepting? The answers are probably yes, which means you have a promissory estoppel argument at minimum.

This thread is giving me flashbacks. Happened to me at TWO different startups. First one - company folded before I could do anything, equity was worthless anyway. Second one - founder claimed verbal promise "didn't count" but I had witness (my cofounder at the time who heard the call). Settled out of court for 40k.

Pro tip: ALWAYS follow up verbal equity discussions with an email summarizing what was discussed. "Just to confirm our conversation - you mentioned 1% equity vesting over 4 years, is that correct?" Get it in writing, people.

OP - any update on the attorney consultation? This is a valuable thread for others in similar situations.

Update: Had two consultations. Both attorneys said I have a strong case. One is taking it on contingency (33% if we settle, 40% if we litigate).

She's drafting a demand letter now. Strategy is to send it to the CEO AND cc the acquiring company's general counsel. Apparently this is pretty standard for these situations.

Will update when we hear back.

Following this thread closely. I'm in a slightly different boat - my startup hasn't been acquired but they've been promising to "get to the paperwork" for 18 months now. Starting to feel like they're stringing me along.

At what point should I push harder? I don't want to sour the relationship if they're genuinely just disorganized, but I also don't want to be in OP's situation.

@JusticeMatters99 18 months is way too long. Even at a chaotic early stage startup, getting option paperwork done takes maybe a few weeks once they actually prioritize it. A 409A valuation can be done in 2-3 weeks, and Carta/Pulley/etc make option grants basically push-button.

I would have a direct conversation: "I need my equity documentation finalized within 30 days or I need to reconsider my compensation arrangement." Put a deadline on it. If they still don't act, that tells you everything.

question - does this change if you're a contractor vs employee? i was brought on as 1099 contractor with verbal promise of 0.25% equity after 6 months. now they're saying contractors "arent eligible" for equity even tho the CTO specifically said I'd get it

no email just slack messages. probably screwed right?

@anon_midwest_dev Contractors can absolutely receive equity - many startups issue advisor shares, RSUs, or options to contractors. The "contractors aren't eligible" line is often BS.

Slack messages ARE written evidence. Export them immediately before you lose access. Screenshots too. Promissory estoppel applies to contractors as well as employees - if you relied on that promise (continued working, turned down other gigs, etc.), you may have a claim.

The amount matters too - 0.25% of a small startup might not be worth litigating, but keep your evidence regardless.

Update: Demand letter sent on Aug 5. We sent it to CEO, company's outside counsel, AND the acquiring company's M&A team.

Within 48 hours, I got a call from the CEO's lawyer wanting to "discuss resolution." They're suddenly very interested in settling before the acquisition closes.

We're negotiating now. They started at $150K, my lawyer countered at $600K (accounting for dilution - she calculated my stake would be worth about $480-550K). Currently going back and forth.

The acquiring company apparently told them to "clean this up" before closing. Leverage is real.

$150K as opening offer means they know they're exposed. They wouldn't offer anything if they thought they had no liability. Good sign for OP.

I've seen acquirers pull out of deals over unresolved employee disputes - it's rare but it happens. Nobody wants to buy a lawsuit along with a company.

Tech recruiter here - I see this pattern constantly. Candidates get so excited about equity they don't push for documentation. Then founders "forget" or deprioritize it because there's no accountability.

My standard advice now: Before your first day, you should have in hand: 1) signed offer letter with equity terms, 2) stock option agreement OR written timeline for when you'll receive it (max 90 days), 3) current 409A valuation date and strike price.

If they won't provide these, major red flag. Walk away or insist on higher cash comp to offset the risk.

random question but does this apply to token promises too? I worked at a web3 startup and they promised tokens that never materialized. Is that different legally?

@CryptoKid_2024 Similar principles apply but tokens add complexity. If they promised tokens as compensation and never delivered, you still have breach of contract/promissory estoppel claims. However:

• Valuation is harder - what's the token worth if it never launched?
• SEC implications if they were selling unregistered securities
• Many token agreements have arbitration clauses

Worth consulting a lawyer who understands both employment law AND crypto/securities. That's a narrow specialty but they exist.

Gonna share my horror story since this thread is helpful for others.

Joined a startup in 2019 as employee #5. Promised 1.5% equity, got offer letter saying so. Worked 4 years, company raised $30M total. CEO kept saying paperwork was "with the lawyers."

Company went bankrupt in 2023. No acquisition, just shut down. By the time I realized I should sue, there was nothing to sue FOR. Company was dissolved, assets sold to pay creditors, founders moved on to new things.

I got nothing. Zero. Couldn't even pursue the claim because there was no money to recover. Lost 4 years of below-market salary chasing equity that never existed.

Moral: Don't wait for a liquidity event to assert your rights. Get that paperwork IMMEDIATELY or get out.

@HorrorStory_Pete this is the nightmare scenario. Even with a winning lawsuit, you can't get blood from a stone. This is why timing matters so much.

OP is lucky the company got acquired for real money. Many startups just fade away with nothing to distribute.

For people wanting to protect themselves going forward - I negotiated something into my offer letter that saved me. I added language saying:

"Stock option agreement to be executed within 60 days of start date. If company fails to provide stock option agreement within 60 days, Employee's base salary shall automatically increase by $40,000 annually to compensate for delayed equity."

Guess what? I got my option agreement on day 45. Funny how that works.

@LegallyCareful that's brilliant. As a founder I'd actually respect a candidate who proposed that - shows they understand the value exchange and aren't naive about startup equity risks.

Any founder who refuses that clause is probably not planning to follow through anyway.

UPDATE from my earlier post: Took @FounderMode's advice and gave them a 30-day deadline. CEO got defensive at first ("we're busy, you know how startups are") but I held firm.

They finally got a 409A done and issued my options last week. 19 months late but at least I have them now. Strike price is based on current valuation which is higher than when I joined, so I lost some value there, but better than nothing.

Thanks to everyone in this thread. Would have kept waiting if I hadn't read this.

@JusticeMatters99 Good outcome but FYI - getting options at a higher strike price than you should have is a 409A issue for the company. If they were supposed to grant options when you joined and the valuation has gone up since then, there could be tax implications.

Might be worth asking them to backdate the options to your start date with the appropriate strike price. Companies can do this if they document it properly. You'd owe less in exercise costs and potentially less in taxes.

Another update: Negotiations are dragging. They came up to $280K, we came down to $500K. We're at an impasse around $350-400K range.

Acquisition closing got pushed to end of September because of our dispute (among other due diligence issues apparently). Acquirer is getting impatient.

My lawyer thinks they'll settle around $375-425K to get it done. Will keep you all posted.

Reading this thread is so validating. I always felt like I was being paranoid when I pushed for paperwork. Coworkers would say "relax, it's a startup, they'll get to it." Meanwhile three people I know have gotten burned exactly like OP.

From now on I'm the annoying person who follows up every week until I have signed docs in hand.

Super helpful thread. I'm about to join a seed-stage startup and they're offering 0.8% equity. Based on this, what exactly should I ask for before signing?

They've sent an offer letter mentioning the equity but no other docs yet. Is that normal at seed stage?

@NewbieJoiner At minimum you should request before starting:

1. Offer letter with specific equity terms (percentage or number of shares, vesting schedule, cliff)
2. Copy of the company's current cap table (they may redact names but should show structure)
3. Most recent 409A valuation (or commitment to complete one within 30 days)
4. Written commitment on when you'll receive the stock option agreement

If they push back on ANY of this, proceed with extreme caution. These are standard requests and any legitimate company should provide them.

Adding a success story to balance the horror stories. I was in a similar situation - promised equity, no paperwork for 8 months. Finally sent a firm email saying I needed documentation within 2 weeks or I'd need to revisit my compensation.

CEO apologized profusely, blamed their part-time CFO for dropping the ball, and had docs ready in 10 days. Got my options at the original strike price backdated to my start date. Everything proper.

Sometimes it really is just disorganization. But you still have to push. Nobody is going to prioritize your interests except you.

What about situations where they DID issue options, but the vesting schedule wasn't what was promised? My offer said 4-year vest with 1-year cliff, but the actual option agreement they sent says 5-year vest. I signed it without reading carefully (stupid, I know). Am I stuck?

@AnotherDev_NYC Depends on jurisdiction and specific facts, but generally the offer letter can supersede or modify the stock agreement if there's a conflict, especially if you can show you relied on the offer letter terms when accepting.

This is definitely worth raising with the company - show them the offer letter discrepancy and ask them to amend the option agreement. If they refuse, consult an attorney. The fact that you signed doesn't necessarily waive your rights to what was originally promised.

Also: Read everything before you sign in the future. I know it seems obvious but so many people don't.

Quick tip that saved a friend: if you're leaving a company and haven't received your equity paperwork, send a demand letter BEFORE your last day. It's much harder to pursue once you're gone and don't have access to internal docs, Slack history, etc.

Export everything you can legally access (your own emails, messages about your compensation) before walking out the door.

We're getting close. Current offer on the table is $400K. My lawyer thinks we can get them to $420-425K if we push a bit more but says it's not worth risking the deal falling apart for another $20K.

I'm inclined to take the $400K. Thoughts?

Take the $400K. Bird in hand. The acquisition could still fall through for unrelated reasons, and then you're back to square one with a company that now REALLY hates you.

$400K minus legal fees still puts ~$270K in your pocket. That's life-changing money and way better than the $0 you started with.

Agree with @ExitVictim2023. I've seen deals crater in the final weeks over way smaller issues than a $25K negotiation gap. Get the signed settlement and move on. The mental relief alone is worth it.

One thing to watch in the settlement: make sure it includes a release of claims that goes BOTH ways. You don't want them coming after you later for some BS claim about confidentiality or non-disparagement.

Your lawyer will know this but worth double-checking the language.

This thread has become a great resource for startup equity disputes. Pinning it to the Employment category.

OP - let us know how it resolves!

Just found this thread while researching my own situation. Mine's a bit different - I DID receive my option agreement, exercised my options when I left, paid the strike price... and then the company never actually transferred the shares to me. That was 14 months ago.

They keep saying it's "processing" but I'm starting to wonder if they even exist. Company is still operating, raised another round since I left. This is a different issue, right?

@MissedMyShares Different but related issue. If you exercised options and paid money, you should have shares. If they took your money and didn't deliver, that's potentially fraud and/or conversion.

Send a formal written demand immediately. Something like the templates on this page for breach of contract could be a starting point. State that you exercised on [date], paid $X, and demand confirmation of your share ownership within 10 business days.

14 months is absurd. This should have been done within weeks of exercise. Something is very wrong.

FINAL UPDATE:

Settled for $425,000. After attorney fees (33% contingency), I walked away with about $285K. Not the full $500K+ I might have been entitled to, but far better than the $0 the CEO was offering.

The acquisition closed on October 28. Settlement was paid out of the acquisition proceeds as a closing condition.

Timeline from first demand letter to settlement: about 3 months.

Lessons learned for everyone following this thread:

• ALWAYS get equity agreements in writing with formal option grants - no exceptions
• Keep every email, Slack message, and document related to compensation promises
• Don't accept "we'll do the paperwork later" - no paperwork, no start date
• If you're in this situation, get a lawyer ASAP, especially if there's a liquidity event pending
• Timing is everything - a pending acquisition is massive leverage
• Acquirers hate litigation risk and will pressure sellers to settle
• Contingency attorneys exist for these cases - you don't need money upfront

Thanks everyone for the advice. This thread helped me understand I had real legal options when the CEO was trying to convince me I had none.

Congrats OP! $285K net is a great outcome. You fought for what you were owed and won. The CEO probably hoped you'd just go away but you didn't.

This is exactly why I encourage everyone in these situations to push back. The companies are counting on employees being intimidated or uninformed.

Great outcome OP. One more thing for anyone following: the IRS will consider this settlement as ordinary income, not capital gains. Budget for taxes accordingly - probably 35-40% depending on your bracket.

If you'd received actual shares and sold them after holding for a year, you'd have paid long-term capital gains rates instead. Another reason why proper equity documentation matters - tax treatment is different.

Update on my situation: sent the demand letter @StartupLawyer_SV suggested. Got a call from their CFO within 3 days apologizing and saying there was a "clerical error." Shares were issued and transferred to my brokerage within 2 weeks.

14 months of "processing" fixed in 2 weeks once I sent a formal letter. Unbelievable. Thanks everyone!

This thread is making me sick reading it because I was in a similar situation 5 years ago and did nothing. Company got acquired for $80M, I had a verbal promise of 1% (no email even). Founder said tough luck. I believed him and moved on.

Based on this thread I probably had a promissory estoppel claim. Statute of limitations is long past now. Probably left $200K+ on the table because I didn't know my rights.

Learn from my mistake people. If you have ANY documentation of equity promises, pursue it.

Employment attorney chiming in on this excellent thread. Few additional points for anyone researching:

Section 409A Issues: If a company promised you options but never properly issued them, they may have 409A problems beyond just your claim. Improperly timed option grants can result in IRS penalties. This gives you additional leverage - they're motivated to settle quietly rather than have 409A issues surfaced during litigation or regulatory review.

Witnesses Matter: If colleagues heard the equity discussions or promises, get statements from them now while memories are fresh. Written declarations from witnesses can significantly strengthen your case.

Don't forget dilution math: When calculating what you're owed, account for dilution from subsequent funding rounds. Your 1% might be 0.6% after Series A and B. Lawyers and cap table software can help with this calculation.

Sharing this thread with my entire team. We're at a Series A startup and half of us realized we never got formal option agreements, just offer letters mentioning equity.

Going to collectively ask for documentation. Strength in numbers hopefully.

@TechManager_2024 Good idea but be thoughtful about how you approach it. Coming in as a group demanding paperwork could put the founders on the defensive and make them think you're prepping for a lawsuit.

Maybe frame it as: "Hey, we've all been here a while and want to make sure our equity is properly documented for tax purposes. Can we get copies of our option agreements and the current 409A?"

If they respond positively and get you the docs, great. If they get evasive, then you know something's wrong.

tangentially related question - what if the company DID issue equity properly, but now they want to take it back? My startup is doing a down round and they're asking all employees to "voluntarily" return some shares to make room for new investors.

they're implying there could be "consequences" if we dont cooperate. Is that even legal??

@JaneFromCleveland They cannot force you to return vested equity. Once shares are yours, they're yours. The "consequences" threat sounds like coercion and could itself be actionable.

Document everything - save those communications about "consequences." If they fire you for refusing to surrender equity, you'd likely have a strong wrongful termination and retaliation claim.

That said, in a down round situation, sometimes employees genuinely benefit from voluntarily adjusting equity if it keeps the company alive and their remaining shares have better prospects. But it should be truly voluntary with proper legal review, not coerced.

Necro-ing this thread with a positive update. I used the advice here when negotiating my new job. Insisted on seeing the stock option agreement BEFORE signing the offer letter. HR was surprised but complied.

Found a discrepancy - offer said 0.5% but the option agreement they prepared was only 0.35%. "Mistake" they said. Sure. Fixed it before I signed anything.

Thank you everyone in this thread. Being informed about equity saved me from a potential disaster.

Quick tax update for anyone curious: Met with my accountant. The $425K settlement is indeed taxed as ordinary income. After federal, state (CA), and self-employment taxes, I'm looking at keeping about $235-240K net.

Still a great outcome! But definitely budget for the tax hit if you're in a similar situation.

Used some of the money to max out my 401k, IRA, and HSA contributions for this year and next. Also set aside estimated quarterly taxes so I don't get hit with penalties.

Coming back to add something I've noticed in recent months: more candidates are asking the right questions upfront because of threads like this. Had three candidates this month ask to see cap tables and 409A docs before accepting offers.

Founders are annoyed but it's forcing better practices. The days of "trust us, equity is coming" are hopefully ending.

For anyone who needs it, the basic framework for a startup equity demand letter should include:

1. Statement of the equity promise (quote the offer letter/email exactly)
2. Evidence you relied on the promise (salary reduction, other offers declined)
3. Company's failure to fulfill the promise
4. Your damages calculation (value of promised equity)
5. Specific demand (issue shares, cash settlement amount)
6. Deadline to respond (usually 10-14 business days)
7. Statement that you'll pursue legal remedies if not resolved

Keep it factual and professional. Save the emotions for your therapist, not the demand letter.

This thread has been incredibly valuable for the community. Over 50 replies and still going strong months later.

Thanks to OP for documenting their journey and to the legal professionals who contributed expertise. This is what the forum is meant for - people helping each other navigate complex legal situations.

Thread remains pinned. Keep the updates coming!

Final Update - Case Closed!

Coming back to formally close out this thread and provide a final summary for anyone researching similar situations.

Summary of Resolution:

• Final settlement: $425,000 paid out of acquisition proceeds
• After attorney fees (33% contingency): approximately $285,000 net
• After taxes (ordinary income in CA): approximately $235-240K kept
• Total timeline from discovery to settlement: approximately 4 months
• Acquisition closed successfully on October 28, 2025

What worked: Having the email documenting the equity promise, the second email promising to "get the paperwork done," detailed evidence of below-market salary accepted in reliance on the equity promise, timing the demand letter to coincide with pending acquisition, and cc'ing the acquiring company's legal team.

Huge thanks to @StartupLawyer_SV, @ExitVictim2023, @TechCFO_retired, @VCassociate_anon and everyone else who contributed advice. This thread literally changed my life - I went from thinking I had no claim to recovering a life-changing amount of money.

Key lessons for others:

1. ALWAYS get equity agreements in writing with formal option grants before starting
2. Keep every email, Slack message, and document related to compensation promises
3. If you're in this situation, act quickly - especially if there's a liquidity event pending
4. Contingency attorneys exist for strong cases - you don't need money upfront
5. Acquirers hate litigation risk and will pressure sellers to resolve disputes

The CEO who told me I had "no legal claim" was completely wrong. Don't let anyone convince you that just because paperwork wasn't done, your equity promise is worthless. Fight for what you were promised.

Marking this thread as RESOLVED. Best of luck to everyone!