PTE = Vesting

Most companies use the default Post-termination Exercise (PTE) periods from their law firm’s equity documents. PTE periods are 90 days or less because option grants lose their ISO status after 90 days. The attorneys who wrote these plans in the 1990s were too lazy to manually convert the ISOs to NSOs, so they solved the problem by expiring these grants at 90 days.

These agreements have been copied and re-used for 20 years. Today 96% of all option agreements on Carta have PTE periods of 90 days or less. Punitive and short PTE periods are the norm.

We fixed this at Carta by matching PTE to vesting. Below is an overview of our new PTE. I hope this post will encourage other companies to use our PTE model or create their own.

Note: Our PTE plan requires Carta software. Learn more.

Carta equity plan

The Old Model

Carta old PTE periods
why it was broken

Our New Model

our new model
accruing PTE over time
PTE costs the company
Carta new option terms

Additional Reading:

Employee Equity by Sam Altman

Startup Stock Option by Joe Beninato

Flexport, Coinbase, and Pinterest posts on why they changed to longer PTE windows.

Related articles

What’s Rule 701 and what’s recently changed?

Learn more about Rule 701, recent updates, and how to stay compliant at your company. Everything from the history of Rule 701 to the most recent changes.

What is a 409A valuation?

Learn everything you need to know about section 409A of the internal revenue code. From what is a 409A valuation to 409A methodologies and process.

Equity 101 – Equity Basics for Founders

Learn the basics of equity, how to distribute equity to early employees, and what a cap table is

eShares, Inc. DBA Carta, Inc. is a transfer agent registered with the U.S. Securities and Exchange Commission. The services and information described in this communication are provided to you “as is” and “as available” without warranties of any kind, expressed, implied or otherwise, including but not limited to all warranties of merchantability, fitness for a particular purpose, or non-infringement. Neither eShares, Inc. DBA Carta, Inc. nor any of its affiliates will be liable for any damages, including without limitation direct, indirect, special, punitive or consequential damages, caused in any way or arising from the use of the services or reliance upon the information provided in this communication or in connection with any failure of performance, error, omission, interruption, defect, delay in operation or transmission, computer virus or line or system failure. Transfer Agent services for DTC-eligible registered companies provided by Philadelphia Stock Transfer, a Carta affiliate. Carta Securities LLC is a broker-dealer and a member of FINRA and SIPC. Contact: eShares, Inc. DBA Carta, Inc., 195 Page Mill Road, Suite 101, Palo Alto, CA 94306.