Stock Options for International Founders

Your Team Abroad Deserves to Understand Their Equity.

Stock options are the standard way US startups compensate talent. For international team members, the rules are more complicated than anyone tells them.

Key Takeaways

• Stock options give you the right to purchase shares at a fixed price. You do not own shares until you exercise.
• The standard vesting schedule is four years with a one-year cliff. If you leave before the cliff, you get nothing.
• The 409A valuation sets your strike price, which is almost always lower than what investors pay. This is normal and benefits you.
• For European tax residents holding options in a US company, the tax treatment of exercising is genuinely ambiguous. Get a written opinion from a local tax advisor before making any decisions.
• Dilution is not the enemy. Owning a smaller percentage of a much more valuable company is the entire point.

The Equity Conversation Nobody Has

You join an early-stage startup. You sign an offer letter that mentions 10,000 stock options with a four-year vesting schedule. You nod. You have questions, but you do not want to look uninformed. You move on.

Six months later, you still do not fully understand what you own. Or more accurately — what you do not own yet.

This is especially common for team members outside the US, where equity compensation is less prevalent and the tax implications cross borders.

What Stock Options Actually Are

A stock option is the right to purchase company shares at a predetermined price — your “strike price.” The strike price equals the fair market value of the shares on the date your options were granted, as determined by a 409A valuation.

Until you exercise your options — meaning you actually pay the strike price and buy the shares — you do not own any stock. You have the right to buy, not ownership itself.

This is actually a significant advantage. If the company does not work out, you simply do not exercise. You have lost nothing. If the company succeeds, you can buy shares at your original strike price, no matter how much the value has grown.

How Vesting Works

Most US startups use a standard four-year vesting schedule with a one-year cliff. Here is what that means in practice. If you receive 10,000 options:

• Month 1 through 11: 0 options vested. If you leave, you get nothing.
• Month 12 (the cliff): 2,500 options vest at once (25% of your total grant).
• Month 13 through 48: Approximately 208 options vest each month.
• Month 48: Fully vested. All 10,000 options are yours to exercise.

The cliff exists to protect the company. If someone leaves after three months, they should not walk away with equity. After the cliff, vesting is continuous and predictable.

Why the 409A Price Differs from the Investor Price

New team members are often confused when they see that their strike price is significantly lower than the price investors paid in the last funding round.

This is normal and intentional. The 409A valuation applies to common stock, which has no special rights. Preferred stock — what investors buy — comes with liquidation preferences, anti-dilution protections, and sometimes board seats. Those additional rights make preferred stock more valuable.

A standard “discount for lack of marketability” is also applied to common stock because it cannot be freely traded. The result is a lower strike price for option holders, which means more potential upside.

The Cross-Border Tax Problem

If you are a European tax resident holding options in a US company, the tax treatment of exercising those options varies significantly by country and is often genuinely ambiguous. Local tax advisors in different EU member states give different opinions.

Some jurisdictions treat the exercise as a non-event — you are simply buying shares at the price you agreed to, and tax only applies when you eventually sell. Others treat the difference between your strike price and the current fair market value as employment income at the time of exercise.

Several EU countries have introduced or are introducing ESOP reforms with improved tax treatment, but these regimes are often designed for domestic employers and may have size limits or structural requirements that do not apply to US companies.

Do not rely on general advice for your personal situation. Get a written memo from a tax advisor in your country of residence who has experience with US equity. Having contemporaneous documentation of your tax position can reduce penalties if the tax authority later disagrees.

Dilution Is Not the Enemy

Every time the company raises money or expands its option pool, existing shareholders own a smaller percentage. This is dilution, and it worries people more than it should.

Consider this example. You join early and receive options representing 1% of the company. After several funding rounds, you are diluted to 0.2%. But the company grew from a $5 million valuation to $500 million. Your 0.2% is worth $1 million. Your 1% at the old valuation was worth $50,000.

The goal of a growing startup is for everyone to own a smaller percentage of something much more valuable. Founders get diluted the most — they start with the largest stake and experience every round. Early employees still come out ahead of later hires because they got in at a lower strike price and a larger initial grant.

What Happens If the Company Gets Acquired

Your vested options will typically convert to the right to receive acquisition proceeds — the acquisition price per share minus your strike price. If the acquisition price is lower than your strike price, your options are worthless in that transaction.

For unvested options, it depends on the deal terms. Some acquisitions include acceleration (your unvested options vest immediately). More commonly, unvested options are assumed by the acquirer and continue vesting on schedule, or they accelerate only if you are terminated after the acquisition (“double-trigger” acceleration).

What You Should Do Now

• Log in to your company’s cap table platform (Carta, Pulley, or similar) and review your grant details.
• Know your vesting schedule, your cliff date, and your exercise window.
• If you plan to exercise, consult a tax advisor in your country of residence first.
• Keep records of everything. Your grant notice, your option agreement, and any communications about your equity.

Focus on Building, Not Legal.

Fellow helps domestic and international founders navigate US legal complexity so they can focus on what matters — building. Ready to talk? Email your@fellow.legal to get started.