TL;DR. The Restricted Stock Purchase Agreement (RSPA) is how founders actually become stockholders. It issues your shares subject to vesting and a company repurchase right. Pair it with a timely 83(b) election — filed within 30 days of purchase — or the tax consequences will haunt you for four years.
This post is part of the Montague Entrepreneur Forms Library — a free, plain-English collection of the legal documents every startup needs between its first day and its Series A. Pillar: Founder Equity.
What this document actually does
When you incorporate a Delaware C-corp, the Certificate authorizes shares but doesn’t issue them to anyone. The Restricted Stock Purchase Agreement is the mechanism by which the corporation actually sells common stock to each founder. It does four things: (1) it sets the per-share purchase price (which should be nominal — fractions of a cent — because the company has no real enterprise value yet); (2) it imposes a vesting schedule under which the company retains a repurchase right over unvested shares; (3) it papers the founder’s representations and investment intent for securities-law purposes; and (4) it incorporates the transfer restrictions, right of first refusal, and market-stand-off provisions that will keep the cap table orderly through Series A.
The vesting machinery is the whole point. Without it, a founder who quits in month three walks away with all of their stock, and the remaining founders watch their own equity get diluted by a phantom co-founder who contributed nothing after week twelve. With vesting, the company can repurchase unvested shares at their original nominal cost — which means a founder who leaves early forfeits the equity they haven’t yet earned.
When you’ll encounter it
Immediately after incorporation. The sequence is: (1) file the Certificate of Incorporation; (2) execute the incorporator’s written consent appointing the initial board; (3) the board adopts Bylaws, authorizes the founder stock issuances, and approves the form of RSPA and PIIA; (4) each founder executes an RSPA and a PIIA and pays the nominal purchase price (usually by cash or by contribution of pre-formation IP); and (5) each founder files an 83(b) election within 30 days. Skipping any of these steps, or doing them in the wrong order, creates cleanup work later.
The narrative — the single most important early-stage equity document
The RSPA is the document that makes founder vesting real. Without it, founder equity is a handshake. With it, the company has a legally enforceable repurchase right over unvested shares that protects the remaining founders (and downstream investors) from the risk of a founder walking away early. Big-law practice layers four elements into every RSPA: a purchase price paid in cash or by contribution of IP; a time-based vesting schedule (four-year monthly with a one-year cliff is the market standard); a company repurchase right at the lower of cost or fair market value for unvested shares; and market-standard transfer restrictions, right of first refusal, and drag-along. The single biggest preventable mistake at this stage is failing to file an 83(b) election within 30 days of purchase.
— Montague Law, Entrepreneur Forms Library
The levers
Lever 1 — Purchase price
Set the per-share purchase price at or just above par value. The whole point is that the founder is buying the stock at a price equal to its current fair market value (which, at formation, is essentially zero), so there’s no bargain-element compensation income and no 409A issue.
Lever 2 — Vesting schedule
Four-year monthly vesting with a one-year cliff. Deviating from this requires a good reason. Some founders negotiate credit for pre-formation work ("I’ve been working on this for six months already") by vesting, say, 18 months on the cliff date instead of 12. That’s fine if all co-founders agree. Anything more aggressive than that raises eyebrows at Series A.
Lever 3 — Repurchase right mechanics
The company’s repurchase right should run at the lower of the original cost or then-current fair market value. That way, if the company has gone up in value and a founder leaves, the founder isn’t rewarded by getting FMV — they get what they paid, which is what they forfeited by leaving early.
Lever 4 — Acceleration on change of control
Many founders want acceleration of unvested shares if the company is acquired. Market practice is "double-trigger" acceleration: the shares only accelerate if (1) there’s a change of control and (2) the founder is terminated without cause or resigns for good reason within a defined window post-closing. Single-trigger acceleration (acceleration on a change of control alone) is disfavored by investors and acquirers because it creates a windfall for founders who don’t stay through integration.
The 83(b) election — the 30-day rule you cannot miss
Under IRC § 83, when you receive stock subject to a substantial risk of forfeiture (i.e., unvested), the default tax treatment is that you recognize ordinary income as the shares vest, measured by the difference between the fair market value at vesting and what you paid. At founder stage the numbers are small. By month 48, if the company has succeeded, the numbers can be catastrophic — imagine a founder who paid $0.0001 per share for 2 million shares, and by year three those shares are worth $5 each. Without an 83(b) election, that founder recognizes ordinary income on the $10 million of appreciation as it vests.
The fix is § 83(b). By filing an 83(b) election within 30 days of purchase, you elect to recognize all of the income at the time of purchase — when the stock is worth essentially nothing — and eliminate the ordinary-income recognition on vesting. From that point forward, all future appreciation is long-term capital gain. The election is a one-page letter mailed to the IRS service center where you file your return, with a copy to the company and a copy kept in your own records.
The 30-day deadline is absolute. The IRS has no discretion to accept late elections. Missing it is one of the most expensive preventable mistakes in startup law.
Traps for the unwary
- Missing the 83(b) 30-day deadline. This is the single worst preventable mistake in founder equity. File the election, keep a copy, and sleep well.
- Paying by promissory note. If the founder "buys" the stock with a non-recourse note, the IRS may treat it as an option rather than a stock purchase, which destroys the 83(b) election posture. Pay in cash or IP.
- Not paying at all. If you don’t actually pay the purchase price, there’s no sale, and the 83(b) election is moot because there’s no basis event. Cut a check, even for $200.
- Ambiguous vesting commencement date. The vesting commencement date should be clearly specified and should typically be the date you started working full-time on the company — not the incorporation date, if they differ.
- Ignoring the PIIA. The RSPA and the PIIA travel together. Both should be signed the same day.
How this fits into the founder journey
The RSPA, the 83(b) election, and the PIIA are the three documents every founder signs in the first month of the company’s existence. Get them right and Series A diligence is painless. Get them wrong — especially miss the 83(b) — and the clean-up is measured in tax dollars and lawyer hours. This is the single cheapest place in startup law to prevent expensive mistakes.
Get this reviewed by Montague Law
Working on a deal? Montague Law drafts, reviews, and customizes startup legal documents on a flat fee designed for founders — not at the hourly rates of the big firms whose work product this library is designed to match. If you want this form tailored to your company, or a second set of eyes before you sign, email John.
This post is for general information only and is not legal advice. No attorney-client relationship is formed by reading it. If you’re about to sign something that matters, talk to a lawyer — preferably one who’s seen at least a hundred of these.