Enable Early Exercise for Option Grants
Early exercise allows option holders to purchase shares before they fully vest, which can provide significant tax advantages when done strategically—but it's not right for every situation. Before enabling early exercise, consult with legal and tax advisors to determine if it aligns with your company's equity plan and whether it makes sense for your stakeholders. Early exercise has complex tax implications, and both companies and option holders should seek professional guidance before proceeding.
With Cake's early exercise feature, you can enable this option at the pool level or for individual grants, giving your stakeholders more flexibility in managing their equity once you've confirmed it's appropriate for your company.
Early exercise is a powerful tool for founders, early employees, and key hires in the US:
Tax optimization – Exercising before shares gain significant value can reduce future tax liability and start the capital gains clock earlier
83(b) election benefits – Converting unvested options to shares allows for 83(b) filing, which can lock in lower tax rates
Flexible equity management – Give stakeholders control over when they purchase their equity
Automatic vesting tracking – Shares purchased through early exercise continue vesting on the original schedule, tracked as "Share Vesting" in Cake
Built-in safeguards – Cake provides warnings when early exercise doesn't make sense for certain grant types
30-day 83(b) reminders – Automatic notifications with downloadable forms ensure compliance deadlines aren't missed
Important: Early exercise is only available for US companies and may not be suitable for all grant types. Cake will display warnings when early exercise may not align with the grant structure. Always ensure your company's equity plan documents allow early exercise, and consider consulting with legal and tax advisors before enabling this feature. Early exercise has significant tax implications, and stakeholders should consult their own tax professionals before exercising unvested options.
Enable early exercise at the Plan level:
From the main menu, navigate to Incentive Plans > Options (or Stock options).
Select View pool for the relevant option pool.
Click Settings in the top corner.
In the Settings panel, scroll to the Settings section.
Check the box next to Allow early exercise.
Click Save changes to save.
Once enabled at the pool level, all future grants from this pool will allow early exercise (though stakeholders can still choose whether or not to exercise early).
Enable early exercise for an individual grant:
When creating a new grant, navigate to Incentive Plans > Options (or Stock options) > + Add new or existing offer.
Complete the standard grant details (stakeholder, equity amount, vesting schedule, etc.).
Under the Stock Option type, check the box next to Allow early exercise.
Continue with the rest of your grant setup and issue the offer.
This allows early exercise for only this specific grant, without affecting other grants in the pool.
What happens when a stakeholder exercises early?
When an option holder chooses to exercise unvested options:
The unvested options convert to shares immediately
Shares remain subject to the original vesting schedule
The stakeholder receives an automatic 83(b) election reminder within 30 days with downloadable forms
Clear status indicators show that early exercise has occurred