Post-Termination Exercise Period: Why Non-US Startups Keep Copying a Rule They Don't Need

A post-termination exercise period (PTEP) is the deadline for exercising vested stock options after leaving a company — miss it and the options expire, no matter how much time was put in. The near-universal 90-day version of this deadline comes from a US tax rule for incentive stock options, not from company law or best practice. Outside the US, most startups have no tax reason to use 90 days at all, and are simply copying a number that was never written for them.

That distinction matters more than it sounds. A search for "post-termination exercise period" returns Carta, Cooley, Qapita, and Secfi — all writing, reasonably, for a US or India-adjacent audience where a version of the rule genuinely applies. None of them tell a founder in Lagos, Riyadh, or Jakarta what changes when the ISO tax code that created the 90-day default doesn't apply to them at all.

Where the 90-day rule actually comes from

US incentive stock options (ISOs) get favorable tax treatment — gains taxed as capital gains instead of ordinary income, no tax at exercise if handled right — but only if certain IRS conditions are met. One of those conditions: the option must be exercised within three months of the employee's termination date, or it's automatically treated as a non-qualified stock option (NSO) instead. Lose ISO status and the departing employee can owe ordinary income tax on the spread at exercise, sometimes before they've sold a single share to pay for it.

To avoid triggering that conversion by accident, US lawyers wrote 90 days into standard option plan templates as the default PTEP. It became boilerplate. Then it became the default in cap table software, in option agreement templates downloaded worldwide, and in the assumptions of every founder who has ever looked at a Silicon Valley company's plan documents for guidance.

The problem: the ISO/NSO distinction is a US Internal Revenue Code concept. A company incorporated in the UAE, Saudi Arabia, Nigeria, Egypt, or most of Southeast Asia has never had ISOs, will never file anything with the IRS, and gets zero tax benefit from a 90-day window. It's inherited the constraint without inheriting the reason for it.

The one place outside the US where 90 days is real

There's one meaningful exception, and it's worth being precise about it because it's easy to conflate with the US default.

The UK's EMI (Enterprise Management Incentive) scheme does tie tax-advantaged treatment to exercise timing after leaving. To keep EMI status, options generally need to be exercised within 90 days of the employee ceasing to be eligible (leaving employment, in most cases). A UK startup running an EMI scheme has a genuine local reason to keep the 90-day default — this isn't a copied US rule, it's a requirement of the scheme it's actually using.

Outside EMI-qualified UK options, the picture changes fast:

• UAE (mainland, DIFC, ADGM) — no tax-qualified stock option regime exists. A 90-day PTEP is a drafting habit, not a legal necessity. Many UAE-based companies also sidestep the exercise question entirely by using phantom shares or SARs instead of options (more on that below).
• Saudi Arabia — the 2022 Companies Law and its ESOP-enabling provisions don't impose an exercise-timing rule tied to tax status. Founders are free to set the PTEP at whatever length makes sense for retention and cash-flow reasons.
• Nigeria, Kenya, Egypt — company law addresses share issuance and transfer mechanics, not option-specific tax-qualification timing. The 90-day figure shows up almost exclusively because a founder or lawyer started from a US or YC-style template.
• India — ESOP rules under the Companies Act 2013 and SEBI (for listed companies) govern vesting and lock-in, but don't mandate a 90-day post-termination exercise deadline the way US ISO rules do. Indian option plans commonly set 90 days to 1 year, and increasingly longer, without any tax penalty for choosing longer.
• Most of Southeast Asia and Latin America — similarly no tax-linked exercise deadline. The window is whatever the plan document says.

In every one of these markets, a founder who copied a US template's 90-day clause is imposing a real cost on departing employees for no compliance benefit at all.

Why the copied default actually hurts you

Ninety days is a tight window for someone who has to come up with real cash. Exercising an option means paying the strike price — sometimes plus a tax bill, depending on the jurisdiction — for shares that, at a private Seed-to-Series-B company, they usually can't sell for years. An early engineer in Nairobi or Karachi being asked to find exercise cash within 90 days of leaving, with no secondary market to sell into, faces a worse version of a problem Silicon Valley employees already complain about — and in this case, the company gained nothing from imposing it.

The predictable result: employees who can't afford to exercise simply let vested options lapse. That's equity the company spent real dilution issuing, handed back to the pool for nothing, because a deadline copied from an unrelated tax code made it functionally unusable. If retention and alignment were the point of the grant in the first place, a 90-day PTEP with no tax justification actively works against that goal.

What to set instead

There's no single right number, but there is a right process: decide the PTEP deliberately, based on your actual jurisdiction's rules, instead of accepting whatever the template says.

1. Check whether a local tax-qualified scheme actually constrains you. UK EMI is the clearest case. Outside a scheme like that, there is likely no tax reason to hold the line at 90 days.
2. If you're free to choose, choose for retention, not habit. A 1-to-2-year post-termination exercise window is increasingly common even among US companies (Pinterest, Coinbase, and others extended theirs publicly), and it costs the company little beyond a marginally longer average option life on the cap table.
3. Write the number explicitly into the grant agreement, not just the umbrella option plan. A departing employee should be able to read their own agreement and see the actual deadline, not have to ask legal to interpret a cross-reference.
4. Reconsider whether options are the right instrument at all. If the goal is compensation alignment without the mechanics of a purchase decision, exercise deadline, and strike price, phantom shares or stock appreciation rights remove the PTEP question entirely — there's nothing to exercise, so there's no deadline to miss. This is one reason phantom plans are common for UAE mainland companies, where actual share transfers to departing employees are administratively harder than a cash-settled payout.

The PTEP question also isn't separate from how a departure is classified in the first place. If your shareholders' agreement runs good leaver / bad leaver provisions, the exercise window for vested options and the buyback terms for vested shares are two different clauses that need to say something consistent — a generous PTEP paired with a punitive bad-leaver share price sends a mixed signal, and departing employees will notice.

Where this shows up on your cap table

A PTEP is only as good as the tracking behind it. A vested option with an expiring exercise window is a live liability on the cap table until someone either exercises it, lets it lapse, or the company extends it — and getting that wrong in either direction is expensive: extend it silently and you've created an undocumented side letter; let it lapse when it shouldn't have and you've created a dispute.

Govy issues stock options, RSUs, SARs, and phantom shares as distinct instrument types with jurisdiction-aware, auto-generated grant agreements, so the exercise terms that matter for the UAE and Saudi Arabia specifically are stated in the document itself rather than borrowed from a US template. Vesting runs on an append-only ledger, so what's actually vested — and therefore exercisable — on any given date isn't a guess.

See how equity issuance and grant agreements work for your jurisdiction at govy.tech.

FAQ

What is a post-termination exercise period (PTEP)?

It's the window after someone's employment ends during which they can still exercise their vested stock options — pay the strike price and convert options into shares. Miss the deadline and the vested options expire and return to the option pool, no matter how long the person worked or how much of their grant had vested. Most startups set this window at 90 days, but the length is a contractual choice, not a law, outside the US.

Why do so many startups use exactly 90 days?

Because of a US tax rule that has nothing to do with most non-US companies. US incentive stock options (ISOs) only keep their favorable tax treatment if exercised within three months of termination — after that they convert to non-qualified options. Lawyers and template generators wrote 90 days into standard option plans decades ago, and the number has been copied into option agreements worldwide ever since, including by companies with no ISOs, no IRS exposure, and no reason to use it.

Does the 90-day rule apply in the UK, UAE, or Saudi Arabia?

In the UK it can matter — options need to be exercised within 90 days of leaving to keep EMI tax-advantaged status, so 90 days is a real constraint there, not an import. In the UAE and Saudi Arabia there is no equivalent tax-qualified option regime at all, so a 90-day window is purely a drafting habit carried over from a US template; a Gulf company can set it to 6 months, 2 years, or the full remaining option term with zero tax consequence for doing so.

What should a startup outside the US actually set as its exercise window?

Decide it deliberately instead of accepting a template default. If there's no local tax rule forcing 90 days (true for most of MENA, Africa, and Southeast Asia), a 1-to-2-year window gives departing employees room to raise the exercise cash without an unrealistic sprint, and costs the company almost nothing beyond a marginally longer option overhang on the cap table. Write whatever you choose directly into the grant agreement — don't leave it to a template clause nobody re-reads.

Do phantom shares or SARs have a post-termination exercise period at all?

No, and that's the biggest practical difference. Phantom shares and stock appreciation rights are cash-settled — there's no purchase decision, no strike price to pay, and nothing to "exercise" within a deadline. The payout, if any, is calculated and paid on a trigger event (exit, liquidity event, or a scheduled date) under the plan rules. This is one reason phantom shares are common in UAE mainland companies and other jurisdictions where an actual share transfer to a departing employee is legally or administratively awkward.