Financial Terms Glossary

A tax election that allows recipients of restricted stock to pay income tax on the fair market value at the time of grant rather than vesting. Must be filed within 30 days of the grant.

Stock in eligible small businesses that may qualify for significant capital gains tax exclusions under Section 1202 of the Internal Revenue Code.

An independent appraisal of the fair market value of a private company's common stock, required by the IRS for stock option pricing and tax compliance.

The value of a company immediately after a financing round, calculated as pre-money valuation plus the amount of new investment.

The value of a company before receiving external financing or investment.

An individual or entity that meets specific income, net worth, or professional criteria allowing them to invest in private securities offerings.

A contractual provision that prevents company insiders and early investors from selling their shares for a specified period, typically after an IPO.

A contractual clause that protects investors from dilution by adjusting their conversion price or share count when the company issues shares at a lower price.

The right of preferred stockholders or convertible security holders to exchange their shares for another class of securities, typically common stock.

A provision that enables a majority shareholder to force minority shareholders to join in the sale of a company.

The right to receive a specified amount before other shareholders in a liquidation event, typically structured as a multiple of the original investment.

A provision ensuring an investor automatically receives any better terms granted to future investors in subsequent financings.

Preferred stock that receives both its liquidation preference and participates in the remaining proceeds with common stockholders.

The right of existing shareholders to purchase additional shares in future offerings to maintain their ownership percentage.

The right to participate in future financing rounds to maintain one's ownership percentage in the company.

The right to purchase shares before they are offered to third parties, typically applied to employee departures or secondary sales.

Rights that allow minority shareholders to join a transaction when a majority shareholder sells their stake.

The maximum number of shares a company is legally permitted to issue, as specified in its articles of incorporation.

Short for capitalization table - a spreadsheet or document showing the ownership stakes, equity dilution, and value of equity in a company.

A type of equity security representing ownership in a company, typically carrying voting rights and residual claim on assets after preferred stockholders.

The reduction in existing shareholders' ownership percentage due to the issuance of new shares or convertible securities.

A qualified defined-contribution plan that invests primarily in the stock of the sponsoring employer company.

The total number of shares that would be outstanding if all convertible securities, options, and warrants were exercised or converted.

A portion of company equity set aside for employee stock options and other equity incentives, typically 10-20% of total shares.

A class of ownership with preferential rights over common stock, typically including liquidation preferences and other enhanced rights.

A group of individuals elected to represent shareholders and oversee the management of a company's major decisions and policies.

Rights that allow shareholders to vote on certain company matters, such as board elections and major corporate decisions.

A form of short-term debt that converts into equity, typically upon a future financing round, with predetermined terms such as discount rate or valuation cap.

A percentage discount given to SAFE or convertible note holders when converting to equity in a future financing round.

An investment contract providing the right to receive equity in a future financing round, without determining a specific price per share at the time of investment.

Sequential rounds of preferred stock financing, typically becoming more complex and investor-favorable as companies mature.

The maximum valuation at which a SAFE or convertible note will convert to equity, protecting investors from excessive dilution.

The price at which an option holder can purchase shares when exercising their stock options, also called the strike price.

Stock options that do not qualify for special tax treatment and are subject to ordinary income tax rates upon exercise.

A contract that gives the holder the right to buy shares at a predetermined price (exercise price) for a specific period.

The process by which employees earn the right to their equity grants over time, typically with a cliff period and gradual vesting thereafter.

A period during which no vesting occurs, after which a portion of the equity grant vests immediately (typically 12 months with 25% vesting).

The sale of shares by existing shareholders to new investors, rather than the company issuing new shares.

A financial instrument that gives the holder the right to purchase shares at a specific price within a certain timeframe.

A calculation showing how proceeds from a liquidation event would be distributed among different classes of shareholders based on their rights and preferences.