Employee equity
Follow an option grant from issuance to cancellation
Trace granted, vested, exercised, certified, and cancelled quantities through a worked option example without double-counting shares or reserve capacity.
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State the grant and plan assumptions
Assume an equity plan has a 100,000-share reserve and no other awards. A holder receives 12,000 options at a $1 strike, vesting monthly over 48 months with a 12-month cliff. Cancellation returns capacity to this plan; exercise remains committed under its recycling rules. Assume no early exercise, acceleration, splits, or other events.
This example tracks share counts and exercise consideration. It does not calculate tax, determine qualification as an ISO, or decide whether an actual departure requires forfeiture.
Separate granted and vested quantities
At grant, 12,000 options are committed and 88,000 plan shares remain available. Under the assumed schedule, nothing vests before the first anniversary. At 12 months, 3,000 vest; at 24 months, 6,000 have vested.
Vesting alone does not create issued shares. At the 24-month point, if nothing has been exercised or cancelled, the grant still contributes 12,000 options to the fully diluted count: 6,000 vested and 6,000 unvested.
Record an exercise and its certificate
Assume the holder exercises 2,000 vested options at month 24 and receives the linked share certificate. Exercise consideration is 2,000 × $1 = $2,000. The holder now has 2,000 issued shares and 10,000 options remaining.
The grant and its certificate together still represent 12,000 fully diluted shares. Adding the original 12,000 options to the 2,000 certificate shares would count the exercised quantity twice. Plan commitment also remains 12,000 under the stated recycling rule.
If the exercise is entered without a certificate, Cap Table keeps that uncertified quantity represented on the grant side. Issuing the missing certificate later supplies the dated share record without recording a second exercise.
Record the unvested cancellation separately
Assume the holder departs at month 24 and the 6,000 unvested options are cancelled on that date. The 4,000 vested, unexercised options remain outstanding under the assumed exercise window. The 2,000 issued shares remain held.
| Measure | Quantity |
|---|---|
| Originally granted | 12,000 |
| Exercised into a certificate | 2,000 |
| Cancelled unvested options | 6,000 |
| Remaining vested options | 4,000 |
| Remaining grant plus issued shares | 6,000 |
| Plan committed under the assumed rules | 6,000 |
| Plan available | 94,000 |
Check 12,000 = 2,000 exercised + 6,000 cancelled + 4,000 remaining. If the remaining 4,000 later lapse and are cancelled with return to reserve, available capacity becomes 98,000. The 2,000 issued shares stay committed under the assumed rules.
Verify the actual workflow
Use lifecycle actions for the exercise and cancellation, and the departure workflow for the departure review. Inspect the linked certificate, grant status, plan movements, and History after each event.
Different recycling rules or early-exercise terms change this example. An RSU settlement also follows a different workflow and has no strike payment. Use Settle and cancel RSUs for those awards.