Right when you set up a company, there is a small, boring piece of paperwork that matters more than almost anything else you will do in the first year.

The 83(b) election.

Too many founders either don’t understand it, delay it, or assume their lawyer handled it. Do not assume your lawyer handled it.

If you are issued stock that vests over time (nearly all founders are) you have 30 days from the date the stock is granted to file an 83(b) election with the IRS.

Miss it, and future-you will get a very expensive lesson.

P1.

Founder stock almost always vests over time. The standard structure is four years with a one-year cliff. That means you technically own the stock, but you earn it gradually.

The question is simple: Do you want to be taxed on that stock now, when the company is worth almost nothing, or later, when it vests and becomes valuable?

The 83(b) election tells the IRS you want to be taxed now. (You do!)

At formation, the stock is usually worth fractions of a cent. You pay almost nothing in tax. From that point forward, all appreciation is capital gains.

If you do not file an 83(b), each vesting event becomes a taxable event. You owe ordinary income tax on stock you cannot sell, based on a value you may never realize. This is how founders end up with large tax bills on paper gains.

There are very few true “no undo” mistakes in startups. This is one of them.

If you miss the 30-day window, there is no extension. The IRS does not care that you are a first-time founder.

P2.

Most founders accept four-year vesting with a one-year cliff without thinking about it. That structure came from early software companies where timelines were shorter and exits happened faster. We live in a different world now.

Companies now:

• Take longer to build

• Stay private longer

• And require deeper commitment before real value is created

Giving up 25 percent of a company over four years may no longer make sense.

If a cofounder leaves after four years fully vested, the remaining founders are permanently diluted. Fixing that requires a recap, and recaps require investor approval. Investors don’t always say yes.

Founder cap tables are more extensive than most marriages, so treat it with deep sensitivity. The cap table you create early is what you’ll be stuck with late.

Have the times changed enough that vesting schedules should change too? For some companies, the answer is clearly yes.

Five- or six-year vesting schedules are becoming more common in businesses that take longer to mature. This aligns ownership with long-term value creation.

Vesting is governance. The 83(b) is tax. The 83(b) is not to be F'd with.

Most problems in startups do not come from big strategic mistakes. They come from ignoring the basics. Please, for the love of your future-you, file your 83(b) within 30 days.