Founder Equity, Vesting & 83(b) Elections for UK C-Corp Founders

"I am the only founder — why would I vest against myself?" This is one of the most common questions from solo UK founders. The answer is straightforward: VCs will require it.

• VC term sheets always include vesting — If you do not already have vesting in place, investors will impose it during your first fundraise. It is better to set it up on your own terms at incorporation.
• Future co-founders — If you bring on a co-founder later, having vesting already in place makes the equity negotiation simpler and fairer.
• Tax benefits — Vesting plus an 83(b) election at incorporation gives you the best possible tax treatment. Without vesting, there is no need for an 83(b), and if vesting is imposed later at higher valuations, you lose the tax benefit.
• Credibility signal — When investors see vesting already in place, it signals that you understand startup governance.

Acceleration clauses protect founders by speeding up vesting when certain events occur. There are two types:

Recommendation for UK founders: Include a double-trigger acceleration clause in your Stock Purchase Agreement. This protects you if your company is acquired and the acquirer decides to replace you, while still being acceptable to investors. Single-trigger acceleration makes acquisitions harder (acquirer inherits fully-vested founders with no retention incentive) and most VCs will push back on it.

If you miss the 30-day deadline, you cannot file an 83(b) election for that stock grant. Period. There are no extensions, no hardship exceptions, and no retroactive filings. Your shares will be taxed as ordinary income at their fair market value on each vesting date. If your company has appreciated significantly (for instance, after a funding round), this can result in substantial tax liability on "phantom income" — income you have not actually received in cash. The IRS has consistently denied late 83(b) filings, and Tax Court has upheld these denials. This is the single most time-sensitive action in your entire formation process.

No, not at the time of incorporation when issuing founder stock at par value. A 409A valuation is required when you grant stock options to employees — it determines the minimum exercise price (strike price) for options. At incorporation, when the company has no revenue, no product, and no funding, the FMV is essentially zero and par value is defensible. You will need a 409A valuation before granting any options, which typically happens when you begin hiring or after a funding round. Most startups get their first 409A valuation 6-12 months after incorporation, or immediately before issuing options. See our 409A Valuation Calculator.

You can, but most experienced founders and investors advise against a perfectly equal 50/50 split. The core problem is deadlock: if you disagree on a major decision and each hold exactly 50% of voting power, there is no way to break the tie. Many VCs view a 50/50 split as a red flag, suggesting that the founders could not have an honest conversation about relative contributions. Consider a 51/49 or 55/45 split instead. The person with the original idea, more relevant experience, or who will serve as CEO typically receives the larger share. Regardless of the split, BOTH founders should be subject to the same 4-year vesting schedule.

Restricted stock is actual ownership of shares, purchased at a low price (par value), subject to a company repurchase right that lapses over time (vesting). You own the shares from day one and can file an 83(b) election. Founders typically receive restricted stock. Stock options are a right to purchase shares in the future at a fixed price (the strike/exercise price). You do not own shares until you exercise the option. Options are typically granted to employees, not founders. The key differences: restricted stock is better for founders (lower tax with 83(b), immediate ownership, voting rights from day one), while options are standard for employees (no upfront cost, flexibility, 409A requirements).

Yes, HMRC and the IRS apply fundamentally different frameworks. The IRS taxes restricted stock under Section 83 (with the 83(b) election option). HMRC taxes employment-related securities under Part 7 of ITEPA 2003, which does not recognise the 83(b) election. Under UK rules, you may be subject to income tax and National Insurance when restrictions lapse (vesting). The UK equivalent of an 83(b) election is a Section 431 election, which must be filed within 14 days of acquisition and has the effect of treating shares as if unrestricted for UK tax purposes. You should file both the US 83(b) and UK Section 431 elections. The UK-US tax treaty provides relief from double taxation, but the interaction is complex and requires specialist cross-border tax advice. See our HMRC Reporting Guide for more details.