Why do ISOs need stockholder approval and NSOs don

IRC §422(b)(1) requires the issuing plan to be approved by the stockholders within 12 months of board adoption — backwards or forwards — for any option to qualify as an ISO. NSOs have no such requirement; they're general non-qualified compensation. The penalty for issuing an ISO under an unapproved plan is requalification to NSO treatment (loss of long-term capital-gains tax outcome on a qualifying disposition), not a §409A violation.

Pre-seed / seed: 10% of fully-diluted, often expanded to 12.5% at the first priced round to account for the dilution. Series A: 12.5–15%. Series B and beyond: typically refilled to 5–10% on each round depending on hiring plan. Specific share counts depend on the cap table; the percentage is what investors negotiate at the round.

When does an evergreen plan make sense?

At scale — post-Series-B, definitely post-IPO. Evergreen avoids the cadence of asking stockholders to expand the pool every 12-18 months (which gets harder as the cap table widens). Trade-off: institutional investors and proxy advisors (ISS, Glass Lewis) are sceptical of evergreen plans and will often vote against them at IPO if the auto-top-up percentage is above ~4%.

Can a tier-4 agent adopt a plan autonomously?

No — initial plan adoption is on the hard floor for tier-4 tokens because it requires real director and stockholder signatures. Tier-4 agents can prepare the package and route the envelopes, but the adopting resolutions need human countersigns. Annual evergreen top-ups under a pre-approved standing resolution are an exception — those run on tier-4 within scope.

What happens to grants when the plan expires?

`expiry_years` defaults to 10 (IRC §422 caps the life of an ISO plan at 10 years). At expiry, the plan transitions to `expired` and no new grants can issue against it; existing grants remain valid for the full 10-year life of each individual grant. Adopt a successor plan in advance via this same recipe (typically year 9) to avoid a gap.

Adopt an equity plan

Last updated Jun 14, 2026

Authorize an option pool, request board and stockholder approval, generate the plan document, and register the underlying shares for issuance.

4 calls · 3 webhooks

Trigger

The board has agreed (in principle) to set aside an option pool. You're ready to make it real.

Call sequence

1. Author the plan

POST /v1/equity_plans  { entity, pool: 1500000, type: 'incentive_stock_option' }

2. Request board consent

POST /v1/board_consents  { entity, actions: [{ kind: 'approve_equity_plan', plan }] }

3. Request stockholder consent

POST /v1/approvals  { entity, kind: 'majority_written_consent', actions: [{ kind: 'approve_equity_plan', plan }] }

4. Reserve the pool against authorized shares

PATCH /v1/equity_plans/{plan}  { reserve: true }

Idempotency

Plan creation is idempotent on `(entity, name, type)`. Re-issuing consents on a signed plan returns the existing consent.

Webhooks

Event	Description
`equity_plan.created`	Plan exists in pending status.
`board_consent.signed`	Board has approved.
`equity_plan.adopted`	Plan is live; you can issue grants.

Errors

Status	Code	Description
`422`	`insufficient_authorized_shares`	The pool exceeds remaining authorized shares. Increase authorized shares first.

Grant employee equityIssue the first option grant under the plan.

When to reach for it

Once at formation. Once after every priced round (the round close package runs the pool top-up automatically — see issue-a-priced-round). Once whenever the board votes to expand the pool independently of a financing.

The formation-time EquityPlan shipped by form-a-company is a stub — it sets a default authorized-share ceiling but is not an IRC §422-compliant plan. ISO grants against it return 422 plan_unauthorized_for_iso. Run this recipe to adopt a real plan before you issue your first option grant.

Adoption sequencing

The plan returns in drafted until both adopting resolutions sign. Once the board signs, equity_plan.adopted fires and grants can issue as nso / rsu / rsa. ISO grants stay blocked (422 plan_unauthorized_for_iso) until the stockholder envelope completes — at which point equity_plan.iso_eligible fires and ISO grants unblock.

The stockholder consent can be deferred up to 12 months from board adoption per IRC §422(b)(1) — backwards or forwards. NSO grants are not gated on stockholder approval; ISO grants are.

Error recovery

Failure	Cause	Remediation
`409 plan_already_active`	An `EquityPlan` is already `active` on this entity.	Either grant against the existing plan, or run a pool top-up via the Pool top-up variation instead of adopting a second plan.
`412 no_directors_on_entity`	`Entity.directors[]` is empty.	Add directors via `POST /v1/entities/{id}/officers`; reuse the same `Idempotency-Key`.
`412 no_stockholders_for_iso`	`iso_eligible: true` but no holders representing voting power exist yet.	Either flip `iso_eligible: false` (board-only adoption; ISOs blocked until later) or backfill stockholders via `/restate-cap-table` before retrying.
`408 stockholder_deadline_lapsed`	Stockholder envelope timed out beyond `deadline_days`.	The plan stays `active` but ISOs remain blocked. Open a fresh stockholder envelope via `POST /v1/workflows/generate_board_consent` with `kind: option_plan_stockholder_approval` referencing this `equity_plan_id`.
`400 authorized_shares_exceeds_pool`	`authorized_shares` exceeds the entity's unallocated common pool.	Either lower the request or amend the charter to authorize more common; see issue-a-priced-round for the charter-amendment shape.

Full taxonomy at errors.

Variations

Expand the authorized-share count of an already-active plan after a priced round (or whenever the board independently votes a top-up). Uses the amendment endpoint, not the create endpoint.

curl -X POST https://api.mattermode.com/v1/equity_plans/plan_4Vt6yJzH/amendments \
  -H "Authorization: Bearer $MATTER_KEY" \
  -H "Matter-Version: 2026-05-01" \
  -H "Idempotency-Key: $(uuidgen)" \
  -d '{
    "subject": "increase_authorized_shares",
    "authorized_shares_delta": 1500000,
    "effective_date": "2026-05-01",
    "approvals": {
      "board": {"signature_threshold": "majority"},
      "stockholders": {"signature_threshold": "majority_voting_power", "deadline_days": 365}
    }
  }'

ISO-eligibility on the additional shares requires fresh stockholder approval per IRC §422 — even if the existing pool is ISO-eligible. Matter routes both consents in parallel and surfaces the deadline on equity_plan.iso_eligible_pending until the stockholder envelope clears.

An evergreen plan auto-tops up annually based on a percentage of fully-diluted outstanding (typically 4–5%), with the increase pre-approved by stockholders at adoption so each annual top-up needs only a board ratification. Common at scale-stage and post-IPO.

{
  "name": "2026 Equity Incentive Plan (Evergreen)",
  "type": "stock_plan",
  "authorized_shares": 5000000,
  "effective_date": "2026-04-25",
  "iso_eligible": true,
  "expiry_years": 10,
  "evergreen": {
    "annual_top_up_percent": 4.0,
    "top_up_anniversary_month": 1,
    "stockholder_pre_approval_years": 10
  }
}

The first stockholder consent at adoption pre-approves up to 10 years of auto-top-ups; subsequent annual increases need only a board ratification (via run-a-board-consent kind: evergreen_top_up_ratification).

For post-Series-B teams where the FMV is high enough that option strikes are unaffordable, adopt a stock_plan that issues RSUs (and NSOs as a fallback) but skips ISO eligibility. No stockholder approval required — board-only adoption is sufficient.

{
  "name": "2026 RSU Plan",
  "type": "stock_plan",
  "authorized_shares": 3000000,
  "effective_date": "2026-04-25",
  "iso_eligible": false,
  "expiry_years": 10,
  "permitted_grant_kinds": ["rsu", "nso"]
}

Lighter-weight — type: option_pool instead of stock_plan. Same shape, no agreement document attached. Use when you want to reserve shares for future option grants without a fully-papered plan, e.g. a pre-priced-round set-aside.

{
  "name": "Series Seed Option Pool",
  "type": "option_pool",
  "authorized_shares": 1000000,
  "effective_date": "2026-04-25"
}

A pure option pool is not ISO-eligible — promote it to a stock_plan via amendment before issuing ISOs.

FAQ

Grant employee equity — issue grants against the adopted plan
Run a board consent — kind: option_plan_adoption is one of the typed consents
Issue a priced round — pool top-up runs as part of the round close package
Equity plan endpoint — primitive reference
Amend equity plan — pool top-ups, term extensions

Adopt an equity plan

Trigger

Call sequence

1. Author the plan

2. Request board consent

3. Request stockholder consent

4. Reserve the pool against authorized shares

Idempotency

Webhooks

Errors

When to reach for it

Adoption sequencing

Error recovery

Variations

FAQ

On this page

Adopt an equity plan

Trigger

Call sequence

1. Author the plan

2. Request board consent

3. Request stockholder consent

4. Reserve the pool against authorized shares

Idempotency

Webhooks

Errors

When to reach for it

Adoption sequencing

Error recovery

Variations

FAQ

On this page

Adopt an equity plan

Trigger

Call sequence

1. Author the plan

2. Request board consent

3. Request stockholder consent

4. Reserve the pool against authorized shares

Idempotency

Webhooks

Errors

Related

Why do ISOs need stockholder approval and NSOs don't?

What's a typical pool size at each stage?

When does an evergreen plan make sense?

Can a tier-4 agent adopt a plan autonomously?

What happens to grants when the plan expires?

On this page

Adopt an equity plan

Trigger

Call sequence

1. Author the plan

2. Request board consent

3. Request stockholder consent

4. Reserve the pool against authorized shares

Idempotency

Webhooks

Errors

Related

Why do ISOs need stockholder approval and NSOs don't?

What's a typical pool size at each stage?

When does an evergreen plan make sense?

Can a tier-4 agent adopt a plan autonomously?

What happens to grants when the plan expires?

On this page