Opções de ações para administração sênior

Olhando para opções de estoque de gerenciamento.

Muitas empresas de propriedade pública concedem suas opções de ações de gerenciamento de executivos de alto nível, além de seus salários e outros benefícios de remuneração. As opções de compra de ações da Administração são um excelente exemplo de emissão de ações em valores abaixo do mercado.

Uma opção de estoque de administração dá a um gerente o direito legal de comprar um certo número de ações a um preço fixo a partir de algum momento no futuro & # 8212; assumindo que as condições de emprego continuado e outros requisitos estão satisfeitos.

Normalmente, o preço de exercício (também chamado de preço de exercício) de uma opção de administração de ações é igual ou superior ao valor de mercado das ações no momento da concessão. Assim, dar a um gerente uma opção de estoque não produz nenhum ganho imediato para o gerente. Se o preço de mercado das ações exceder o preço de exercício da opção de compra de ações no futuro, as opções de ações se tornam valiosas; de fato, muitos gerentes se tornaram multimilionários de suas opções de compra de ações.

Pode parecer, portanto, que as opções de ações da administração devem ter um impacto negativo no preço de mercado das ações da corporação, porque o valor total da empresa deve ser dividido em maior número de ações.

No entanto, a teoria é que o valor total do negócio é superior ao que teria sido sem as opções de ações da administração porque os melhores gerentes foram atraídos para o negócio ou os gerentes tiveram melhor desempenho por causa de suas opções. Os acionistas acabam melhor do que teriam sido se nenhuma opção de compra de ações tivesse sido concedida aos gerentes. Bem, essa é a teoria.

Ut comercializa o exército de paz forex.

As opções de estoque são uma grande parte do sonho de inicialização, mas muitas vezes não são bem compreendidas, mesmo por executivos seniores que derivam grande parte de suas receitas de opções de ações. Há uma captura pequena, mas necessária: isso significa que, se você deixar a empresa na semana seguinte ao seu ingresso, você perde suas opções de compra de ações. Então, quanto tempo você precisa ficar para manter suas opções? Na maioria das empresas, eles ganham mais de quatro anos. Os detalhes variam de empresa para empresa; Algumas empresas vendem opções ao longo de 5 anos e algumas em outros períodos de tempo, e nem todos os empregadores têm o precipício. Por que você se importaria se aquele cara que foi demitido depois de seis meses se afastou com opções ou não? Lembre-se de cada ação representa uma parte da propriedade da empresa. Quanto mais compartilham, menos valor cada um representa. Digamos quando você se juntar à inicialização e obter 5, ações, há 25, total de ações em circulação. Agora você faz metade do mesmo valor da empresa. Dito isto, a diluição não é necessariamente ruim. A razão pela qual o conselho aprovou a transação dilutiva sênior arrecadando dinheiro, comprando uma empresa, distribuindo opções de ações é que eles acreditam que fará com que as ações valem mais. Se a sua empresa aumentar muito dinheiro, você pode possuir uma porcentagem menor, mas a esperança é que a presença desse dinheiro permita que a empresa execute uma estratégia que melhore o valor da empresa o suficiente para compensar a diluição e a O preço por ação aumenta. Isso nos leva ao número que é muito mais importante, embora seja um som menos impressionante do que o número de ações - que parte da empresa você possui. Independentemente das unidades, este é o número que importa. Há muito tempo, Albert foi trabalhar na empresa A e Bob foi trabalhar na empresa B. Bob estava muito feliz - ele recebeu 50 opções, apenas 20 centavos cada. Quem obteve o melhor negócio? Digamos que a empresa A tinha 25, ações em circulação, e a empresa B tinha, partes em circulação. Então, enquanto Bob tinha mais opções a um preço de exercício menor, ele ganhou menos dinheiro quando sua empresa conseguiu o mesmo resultado. Isso fica claro quando você observa a percentagem de propriedade. Albert teve 2 pontos base, Bob teve um. Embora fosse menos ações, Albert tinha mais ações da única maneira que importa. Em algum nível, o número é totalmente arbitrário, mas muitas empresas financiadas pelo VC tendem a permanecer em um intervalo similar que varia de acordo com o estágio. À medida que uma empresa passa por mais rodadas de financiamento e contrata mais funcionários, tenderá a emitir mais ações. Uma receita significativa de meio-estágio normal e várias rodadas de financiamento, muitos funcionários com uma equipe completa de executivos no local podem ter milhões de ações em circulação. As empresas de fase tardia que estão prontas para IPO muitas vezes têm mais de milhões de ações em circulação. Falei brevemente sobre o exercício das opções acima. Uma coisa importante a ter em mente é que exercitar suas opções custa dinheiro. Dependendo do preço de exercício e do número de opções que você possui, pode custar bastante dinheiro. Na maioria das empresas privadas, não existe uma maneira simples de fazer o equivalente. A outra coisa realmente importante a considerar no exercício das opções de compra de ações são os impostos, que discutirei mais adiante. Por que o IRS está envolvido e o que está acontecendo? Um dos fatores que o IRS usa para determinar isso é como o preço de exercício compara com o valor justo de mercado. As opções concedidas abaixo do valor justo de mercado causam receita tributável, com uma penalidade, na aquisição. As empresas geralmente preferem preços de operação mais baixos para as opções - o que torna as opções mais atraentes para os potenciais empregados. No caso de opções de estoque de inicialização, elas especificam que deve ser usado um método de avaliação razoável, que leva em consideração todas as informações materiais disponíveis. Os tipos de informações que eles consideram são valores de ativos, fluxos de caixa, o valor prontamente determinável de entidades comparáveis ​​e descontos por falta de comercialização das ações. A maioria das startups tem partes comuns e preferenciais. As ações ordinárias geralmente são as ações que são de propriedade dos fundadores e funcionários e as ações preferenciais são as ações de propriedade dos investidores. Muitas vezes, existem três grandes diferenças: o que isso significa e por que eles são comumente incluídos? A maior diferença na prática é a preferência de liquidação, o que geralmente significa que a primeira coisa que acontece com qualquer produto de uma venda da empresa é que os investidores recebem seu dinheiro de volta. Em algumas ofertas de financiamento, os investidores recebem um retorno de 2x ou 3x antes que qualquer pessoa seja paga. Pessoalmente, tento evitá-los, mas eles podem fazer os investidores dispostos a fazer o acordo por menos ações, então, em algumas situações, eles podem fazer sentido. Os investidores geralmente pedem um dividendo semelhante aos juros sobre o investimento, e geralmente há algumas provisões que exigem o consentimento do investidor para vender a empresa em determinadas situações. Os empregados geralmente obtêm opções em ações ordinárias sem os dividendos ou a preferência de liquidação. As ações não valem tanto quanto as ações preferenciais que os investidores estão comprando. Essa é, é claro, a grande questão. Se sua empresa arrecadou dinheiro recentemente, o preço que os investidores pagaram pelas ações preferenciais pode ser um ponto de referência interessante. O mais provável que a empresa seja vendida a um preço suficiente para que a administração dos investidores de sua preferência seja maior a diferença entre o valor das ações preferenciais e as ações ordinárias. Então, de fato, um investidor inteligente está indiretamente comprando suas ações comuns em torno do preço que os VCs pagam pelo preferido. As opções normalmente expiram após 10 anos, o que significa que, nesse momento, eles precisam ser exercidos ou as opções se tornam inúteis. As opções também normalmente terminam 90 dias após você sair do seu trabalho. Mesmo que sejam adquiridos, você precisa exercê-los ou perdê-los nesse ponto. O requisito de exercício dentro de 90 dias após a rescisão é um ponto muito importante a ser considerado na elaboração de planos financeiros e de carreira. Esta é uma área de assimetria onde os executivos seniores possuem essas disposições muito mais freqüentemente do que os empregados de base. Há três tipos principais de para Neste segundo caso, acho que uma aceleração parcial, o duplo gatilho é justo. No primeiro caso, pode-se exigir aceleração total, único gatilho. Na maioria dos outros casos, acho que os executivos devem ser pagos quando e como todos os outros são pagos. Alguns executivos pensam que é importante obter alguma aceleração na rescisão. Quantas opções de estoque você deve obter é amplamente determinada pelo mercado e varia bastante de posição em posição. Isso é baseado em minha experiência em duas startups e uma grande empresa revisando cerca de mil opções de total de subvenções, além de conversar com VCs e outros executivos e revisar pesquisas de compensação. Eu acredito firmemente que a maneira mais sensata de pensar sobre tamanhos de doações é por valor em dólares. Embora o percentual da empresa seja melhor, ele varia enormemente com base no estágio, por isso é difícil dar conselhos amplamente aplicáveis: o valor do dólar ajuda a explicar tudo isso. O que eu gostaria de ver é o valor das ações que você está adquirindo a cada ano, e quanto valem se o estoque fizer o que os investidores gostariam de fazer - aumenta os tempos de valor. Este não é um resultado garantido, nem é uma fantasia selvagem. Qual deve ser esses montantes? Isso varia de acordo com o nível de trabalho :. Principalmente, os primeiros funcionários muitas vezes acabam nesse intervalo à medida que a empresa cresce. VP, SVP e CxO, excluindo CEO. Para aqueles que lêem isso de longe e sonhando com riquezas do Vale do Silício, isso pode parecer decepcionante. Lembre-se, no entanto, que a maioria das pessoas terá aproximadamente 10 empregos em uma carreira de 40 anos em tecnologia. Ao longo dessa carreira, 4 sucessos menos da metade em níveis crescentes de antiguidade pagarão seus empréstimos estudantis, fornecerão seu downpayment, colocar uma criança na faculdade e eventualmente pagar sua hipoteca. Seu empregador deve estar disposto a responder a esta pergunta. Eu não colocaria nenhum valor nas opções de estoque de um empregador que não responderia de forma clara e inequívoca. Você deve perguntar quanto dinheiro a empresa tem no banco, quão rápido está queimando em dinheiro, e na próxima vez que eles esperam angariar fundos. Isso influenciará tanto a gerência de diluição que você deve esperar quanto sua avaliação do risco de se juntar à empresa. Você deve perguntar qual é o preço de exercício das concessões recentes. Ninguém poderá lhe indicar o preço de exercício de uma concessão futura, porque isso se baseia no valor justo de mercado no momento da concessão depois de começar e quando o conselho aprovar; Tive um amigo para se juntar a uma empresa de jogos quente e o preço de ataque aumentou 3x desde o momento em que aceitou a oferta até o momento em que ele começou. As mudanças são comuns, embora 3x seja incomum. Você deve perguntar se eles para uma noção de como a empresa seria valorizada hoje, mas você pode não obter uma resposta. Existem três razões pelas quais você não pode obter uma resposta: se você conseguir ter uma sensação de avaliação para a empresa, você pode usar isso para avaliar o valor de suas opções de ações conforme descrito acima. Uma característica que algumas ofertas de planos oferecem é o exercício inicial. Com exercícios iniciais, você pode exercer opções antes de serem adquiridas. A desvantagem disso é que custa dinheiro para exercê-los, e pode haver um imposto devido após o exercício. O lado positivo é que se a empresa estiver bem, você pode pagar muito menos impostos. Se você fizer exercício adiantado, você deve avaliar cuidadosamente as conseqüências fiscais. Por padrão, o IRS considerará que você ganhou lucro tributável na diferença entre o valor justo de mercado e o preço de exercício conforme o estoque. Isso pode ser desastroso se o estoque for muito bom. Neste caso, os impostos são calculados imediatamente, e são baseados na diferença entre o valor justo de mercado e o preço de exercício no momento do exercício. Se, por exemplo, você se exercita imediatamente depois que o estoque é concedido, essa diferença é provavelmente zero e, desde que você arquive a documentação corretamente, nenhum imposto é devido até você vender algumas das ações. Esteja avisado que o IRS é implacável sobre esta documentação. Você tem 30 dias a partir do momento em que você exerce suas opções para arquivar a papelada, e o IRS é muito claro que nenhuma exceção é concedida sob quaisquer circunstâncias. Eu sou um fã de programas de exercícios iniciais, mas seja avisado: e se você sair? A empresa tem o direito, mas não a obrigação, de comprar ações remanescentes ao preço que pagou por elas. Os impostos sobre opções de estoque são complexos. Existem dois tipos diferentes de opções de compra de ações, ISOs de opções de ações de incentivo e opções de ações não qualificadas que são tratadas de forma diferente para fins de estoque. Há três vezes que os impostos podem ser devidos na aquisição, no exercício e na venda. Isso é agravado pelo exercício precoce e potencial eleição 83b como eu discuti acima. Esta seção precisa de um aviso: eu não sou advogado ou conselheiro fiscal. Vou tentar resumir os pontos principais aqui, mas esta é realmente uma área onde vale a pena obter aconselhamento profissional que leva em consideração sua situação específica. Não vou ser responsável por mais do que você pagou por este conselho, que é zero. Os ganhos de NSO no exercício são tributados como renda ordinária. Quando você vende as ações, você deve ganhos de capital a curto ou a longo prazo, dependendo do período de retenção na diferença entre o valor das ações no exercício e quando você as vende. Algumas pessoas vêem um grande benefício no exercício e exploração para pagar ganhos de capital de longo prazo em grande parte da apreciação. Seja avisado, muitas fortunas foram perdidas fazendo isso. O que pode dar errado? Mas, na tentativa de minimizar os impostos, você exerce e mantenha. Mas como você paga sua conta fiscal? A situação é um pouco diferente, mas o perigo ainda se esconde. No melhor dos casos, os ISOs são isentos de impostos e são tributados como ganhos de capital na venda. No entanto, esse melhor caso é muito difícil de conseguir. A situação se torna mais complexa com o valor da opção de limites para o tratamento ISO, créditos AMT e com uma base tributária nas ações para fins de AMT e outra para outros fins. Este é definitivamente um sobre o qual consultar um assessor de impostos. No caso de opções de ações líquidas, digamos, em uma empresa pública, na minha opinião, isso é exatamente o que eles pretendem e uma dinâmica saudável: se você sair, você desistir da oportunidade de conquistar ações adicionais e fazer ganhos adicionais. Mas você consegue manter suas ações adquiridas quando você sair. No caso de opções ilíquidas em empresas privadas bem-sucedidas sem um mercado secundário, você pode ser preso de uma maneira mais insidiosa: Este é um efeito relativamente novo que eu acredito ser uma conseqüência não intencional de uma combinação de fatores: até então para adaptar uma frase de advertência faber . As empresas financiadas por private equity geralmente têm acordos de opção muito diferentes; recentemente, havia um pouco de publicidade sobre um funcionário da Skype que desistiu e perdeu suas ações adquiridas. A teoria por trás da recuperação de ações adquiridas é que você está se inscrevendo para a missão de ajudar a vender a empresa e fazer com que os proprietários ganhem lucro; se você sair antes de completar essa missão, você não tem direito a ganhos de ações. Em geral, suas opções adquiridas serão tratadas muito como compartilhamentos e você deve esperar que elas sejam transferidas de alguma maneira útil. Exatamente como eles continuam dependendo da transação. No caso de uma aquisição, todo o seu emprego, não apenas as suas opções não adotadas, são um pouco mais importantes e onde eles vão depender dos termos da transação e se a empresa adquirente deseja mantê-lo. Em um IPO, nada acontece com suas opções adquiridas ou não realizadas por si, mas as ações que você pode comprar com elas agora são mais fáceis de vender. Em uma aquisição de caixa, suas ações adquiridas geralmente são convertidas em dinheiro ao preço de aquisição. No caso de uma aquisição de ações, suas ações provavelmente serão convertidas em ações na empresa adquirente em um índice de conversão acordado como parte da transação, mas você deve esperar que suas opções sejam tratadas de forma semelhante a ações ordinárias. Isso pode realmente ser contraproducente para os titulares de opções. Muitas opções dependem, inclusive se eles mantêm os funcionários. Mas muitas vezes eles são convertidos em opções na nova empresa. Recebi novas opções da empresa adquirente com um preço de ataque SHITTY para fazer sobre isso? Provavelmente não há nada a ver com isso, além de sair embora eu não sou um advogado e você pode perguntar um se houver muito dinheiro envolvido. Quanto tempo você trabalhou lá sem que as opções sejam concedidas? Até alguns meses é normal, além disso é incomum. Trabalhei lá por 6 meses a tempo parcial e outros 6 meses a tempo inteiro. O conselho se reuniu durante o tempo depois de ter aceitado a oferta e iniciado e antes da aquisição e quantas vezes? Revisou sua concessão proposta no meetimg e, se não, por que não? Se analisou sua proposta de subvenção, por que não a aprovou? Em que base foi determinada sua nova bolsa? Eles converteram a concessão na sua carta de oferta com base nos termos da compra ou eles apenas lhe dão ações na empresa adquirente como um novo funcionário dessa empresa? Isso poderia ter sido contínuo desde o momento em que você se juntou, ou começou pouco depois, mas está em andamento na primeira reunião do conselho depois de se juntar. Se este fosse o caso, o conselho pode ter estado em uma situação muito difícil com relação à valorização das opções de compra de ações. Se a discussão da aquisição fosse suficientemente credível, seria uma informação importante que poderia forçar uma reavaliação do valor justo de mercado das ações. Para evitar o risco de os beneficiários, você é responsável por grandes penalidades fiscais, eles provavelmente teriam desejado manter um terceiro para fazer a avaliação. A contratação da empresa leva tempo, a avaliação leva tempo, e a aprovação do quadro da avaliação leva tempo. Durante esse período, as discussões podem ter progredido - talvez tenham uma segunda oferta maior. Isso poderia reiniciar o relógio. Em qualquer caso, mesmo que pudessem concluir a avaliação e conceder as opções, a avaliação poderia ter sido bastante semelhante ao preço oferecido pelo adquirente e essas opções poderiam ter sido convertidas em opções na empresa adquirente em uma greve similar preço ao preço da sua concessão. Se o valor do estoque subjacente ao seu novo número de concessão de ações vezes o preço de exercício está bem dentro dos seis números ou além, pode valer a pena consultar um advogado apenas no caso, mas meu palpite e eu não sou advogado estão indo para dizer que você acabou de ter um momento ruim. Eu também acho que eu deveria ter obtido uma aprovação ou declínio de minhas opções, não foi entregue a mim, então eu acredito que isso é uma violação direta do meu contrato de trabalho. Minhas opções nunca se materializaram, basicamente obtive as opções da empresa de compra em um preço de exercício, que é o preço da ação no dia da compra, o que significa lucro zero! Meu palpite é que você faz alguns inimigos com esta publicação. É claramente vantajoso para a empresa que os termos das opções de compra de ações e os períodos de aquisição permaneçam opacos. E se houvesse liquidez em opções? Isso seria interessante e extremamente perigoso, imagino, porque essa liquidez seria tão predominantemente especulativa na ausência de conhecimento dos fundamentos da empresa. Uma empresa em crescimento bem sucedida concede milhões de dólares de opções a cada ano, e acho que funciona em sua vantagem para que as pessoas entendam seu valor e assim tomem decisões racionais sobre elas. Esse é certamente o caso de empresas privadas bem conhecidas, por exemplo, Facebook e, às vezes, também é o caso das pequenas empresas; pergunta é que você pode encontrar um investidor que queira comprar as ações. Muitas vezes isso será restrito para funcionários atuais, mas mais aberto para ex-funcionários. Isso pode ser muito complexo e a SEC tem regras de contagem de acionistas seniores, como as ações podem ser oferecidas etc. Olá, acabei de receber uma opção de estoque de empregado que me permitiria comprar ações dentro de cinco anos. Eu tenho que comprar as ações imediatamente? Se eu comprar as ações agora e depois de 2 anos saí da empresa ou me despediu, ainda tenho direito às minhas ações? Eu agradeço muito seu conselho. Realmente me desculpe pela resposta adiada. Normalmente você tem todos os 5 anos. Normalmente, você pode comprar alguns agora e alguns mais tarde. As questões fiscais variam, investigue-as cuidadosamente. Bem escrito com certeza. Uma pequena empresa foi comprada por um maior e o empregado recebeu suas opções recalculadas. Faltam 2 anos nesse horário de aquisição de empregados. Sem qualquer negociação prévia no momento da contratação em relação à aceleração da aquisição de direitos, há alguma maneira de receber aceleração em caso de rescisão? Isso significa que seu empregador não tem nenhuma obrigação de mantê-los empregados até o final do período de aquisição ou por qualquer outro motivo. Eles podem ser demitidos devido à falta de trabalho para eles, desejo de contratar alguém menos caro para fazer o mesmo trabalho, desejo de reestruturar e eliminar seu trabalho, ou porque a empresa está insatisfeita com seu trabalho. Ao tratar bem os funcionários terminados, os demais funcionários têm menos probabilidade de entrar em pânico. Normalmente, um deve esperar se aposentar apenas enquanto seu emprego continuar. Como as opções não retomadas funcionam após o IPO? Um IPO é um evento que pode desencadear a aceleração, ou isso é reservado para aquisição tipicamente? As ações não vencidas podem ser canceladas após o IPO? É muito incomum para um IPO desencadear aceleração. Embora seja fácil ver um IPO como um destino para uma inicialização, é realmente o começo de uma jornada muito mais longa. Um IPO significa que uma empresa está pronta para ter uma base mais ampla de acionistas - mas precisa continuar a entregar a esses acionistas, portanto, precisa continuar a manter seus funcionários. Ocasionalmente, as empresas darão às pessoas a opção de manter subsídios de opções reduzidas, mas isso é incomum. Empresas familiares e negócios que existem fora desse ecossistema de investidores iniciantes, advogados, etc. podem ter diferentes arranjos. O que acontece se você exercer opções de ações pré-IPO dentro de 90 dias de desistir e a empresa nunca se torna pública? Então você possui ações que podem ser difíceis de vender. A empresa pode ser adquirida e você pode grt algo para suas ações, ou em algumas circunstâncias você pode vender ações de empresas privadas. Mas o dinheiro que você paga para exercer as ações está em risco. Este artigo completo e sua resposta à minha pergunta foram os melhores redigidos neste tópico que eu poderia encontrar na internet. Recebi o acordo, assinei e recebi uma cópia dela assinada pelo secretário corporativo. Nunca recebi qualquer outra documentação desde então. Devo contactar RH ou um consultor financeiro? Apenas ligeiramente preocupado, já que a empresa me parece um pouco secreta. Estive com eles há mais de 6 anos. Normalmente, você tem 90 dias após a saída até que você tenha que exercer as opções, mas o estoque varia de plano para plano e os detalhes devem estar na papelada que você assinou. Um ponto de dados que você precisará para finalizar sua decisão é o valor de mercado justo da FMV das ações para fins fiscais. A empresa deve estar disposta a dizer-lhe isso; Se é um pouco mais de um centavo alguns impostos serão devidos no exercício, mas as ações são mais propensas a valer alguma coisa. Obrigado Max, eu realmente aprecio isso. Depois de ler seu artigo e fazer algumas pesquisas descobri que estava olhando o valor nominal, não o preço de exercício. Então, no meu caso, estaria severamente debaixo d'água. Obrigado novamente por compartilhar seu conhecimento! Max, obrigado pela excelente informação. Estou pensando em me juntar a uma empresa de tecnologia e me pergunto se há benefícios suficientes tanto para a empresa como para mim para ser trazido como um contratado independente. Qualquer informação que você tem ou pode me encaminhar seria útil. Desculpe o atraso. Mas, mesmo assim, você provavelmente não obterá benefícios ou opções de compra de ações. Boa sorte com sua decisão. Os termos das ações preferenciais variam, não só de empresa para empresa, mas também de diferentes séries de ações preferenciais em uma empresa. Talvez eu não tenha tempo para responder, mas sinto-me livre para me tentar o primeiro sobrenome inicial no gmail. Oi Max - obrigado pelo artigo perspicaz. Metade das minhas opções de ações foram adquiridas. Eu consegui-los a um preço de 3 e a avaliação atual está agora em 4. O que acontece se eu sair depois do IPO, mas ANTES de fechar o funcionário. Posso sair com as minhas opções de data de partida ou devo pagar a empresa para comprá-las na greve concedida PLUS, pagar o imposto sobre os ganhos, etc. Descartando todas as idiossincrasias do seu contrato de opções específicas, normalmente você tem 90 dias após a partida para o exercício. Então, dentro desses 90 dias, você precisa pagar o preço de exercício e você incorre em um imposto. Tenha em mente que o estoque pode diminuir antes que você possa vender, por isso não é apenas a exposição ao fluxo de acash, você pode acabar vendendo por menos do que pagou ao exercício. Obrigado pela ajuda! Pergunta - Comprei estoque e depois minha empresa foi comprada. O meu entendimento é que os principais investidores perderam dinheiro com a venda vendida abaixo do que eles colocaram na empresa. Você tem alguma experiência com ver os funcionários receber concessões de opções adicionais com promoções? Isso é comum ou apenas em posições de nível-chave? Eu ingressou na equipe de vendas de uma pessoa inicial em uma posição de nível de entrada há cerca de 2 anos atrás. É razoável perguntar? É comum, mas não universal, receber subsídios adicionais com promoções significativas, mas existe uma ampla variedade de como estes são tratados: eu pediria a seu empregador o que o processo é para garantir que seu estoque seja compatível com sua contribuição atual para a empresa. Por exemplo, se, quando você se juntou a um funcionário de nível de entrada, recebeu ações e um exec de conta recebido, mas hoje um empregado de nível de entrada recebe ações e um executivo de conta recebe Se esse for o caso, muitas empresas não lhe dariam compartilhamentos adicionais para ir com a promoção, mas aumentaria seu salário. Embora este exemplo possa parecer exagerado, se a empresa tiver o dobro de empregados, as subvenções podem ser metade do tamanho por empregado - muitas vezes o conselho pensará sobre a quantidade de estoque para todos os funcionários como um todo por ano, e agora há duas vezes tantos para compartilhar o mesmo número de ações. Em qualquer caso, seja qual for esse valor, é uma compensação justa para o seu tempo? Quanto tempo você precisa ficar para conquistar as opções? E quanto trabalho você espera fazer? Como sua participação se compara aos outros participantes e sua contribuição? Preciso da tua ajuda! Minha empresa é uma empresa de reciclagem de roupas Green Sustainable. Eu acho que 4 anos são mais comuns, talvez 5 próximos, os anos são incomuns. Não tenho certeza do que mais você está perguntando. Se você está perguntando sobre os impostos sobre o patrimônio líquido, se for opções, geralmente não há imposto sobre aquisição se o plano estiver configurado corretamente, o que quase certamente exigirá um advogado. Com que frequência uma empresa deve revalorizar suas opções de compra de ações privadas? Alguma orientação em torno disso nas normas contábeis? Eu não sou um advogado de impostos, mas acho que, para fins fiscais, as avaliações são boas por um ano. Se as coisas mudam, por exemplo, financiamento, oferta para comprar a empresa, ou outros eventos significativos que você deseja fazer com mais freqüência, e para as empresas em rápido crescimento que podem ser publicadas em breve, você pode querer fazê-lo com mais freqüência. Com as startups se tornando uma tendência global, torna-se complicado criar um modelo que se encaixe em todos. Alguma idéia de ajustar os horários de aquisição, os períodos de penhasco e as acelerações para os empreendimentos que ocorrem em áreas geográficas de alto risco? Uma coisa que eu vejo ajustada globalmente é alguns dos detalhes para atender às leis fiscais locais - mesmo as empresas com sede nos Estados Unidos precisam administrar seus planos de forma diferente em diferentes jurisdições. Talvez um leitor sabe? Excelente artigo, agora para a minha pergunta. Trabalhou para uma empresa de 3 anos, foi investido, por exemplo, em ações, com 5 centavos por ação. Deixando a empresa, parece que o período para se exercitar, a compra das ações terá cerca de mais 7 anos. Quando eu sair, quanto tempo um geralmente, tem que comprar as ações, se elas escolherem. Estou um pouco confuso sobre os 90 dias mencionados ealier no artigo. Normalmente, a opção período de gerenciamento de 10 anos, mas apenas enquanto você está empregado. Quando você sai, as opções de desativação desaparecem e você tem 90 dias para exercer as opções adquiridas. Claro que depende do seu plano de opção específico que pode ser completamente diferente. Tenho algumas ações preferenciais adquiridas. Quais são as minhas opções para liquidá-los antes de qualquer evento? Sua opção pode ser encontrar alguém que queira comprar o estoque em uma transação privada com dados limitados. Ou pode ser que a empresa tenha permissão, mesmo que você encontre um comprador. Negociar estoque privado é difícil. Além disso, se você tiver opções, normalmente você terá que exercê-las antes de poder vendê-las. Essas opções de compra de ações serão consideradas como tendo sido outorgadas em 31 de janeiro e terão prazo de 3 anos a partir da data efetiva concedida. Essas opções de compra de ações devem permanecer investidas por um período de 24 meses em que o Empregado permanece em sua posição atual com a Companhia. Parece que você tem entre 2 e 3 anos para exercê-los. A linguagem de aquisição é um pouco obscura para mim. Você pode querer obter algum conselho jurídico, não posso interpretar isso com clareza. Deixe-me elaborar sobre isso, como estou no meio de uma aquisição de ativos, uma divisão da empresa está sendo comprada que fechará em 31 de janeiro, ainda estou tentando entender o idioma acima e abaixo e quais serão minhas opções uma vez que a transação está completo. O preço de exercício acima dado parece um pouco alto. Como isso funciona em termos de um ativo adquirido em oposição a toda a empresa? Como o Twitter está sendo divulgado em breve e estou na última rodada de entrevista. Se eles me oferecerem um trabalho, haverá algum impacto na minha oferta de ações se eu me juntar antes de entrar no IPO ou será o mesmo depois do IPO? Qual será o meu melhor beneficiário? Normalmente, as pessoas esperam que o preço aumente em I e, portanto, tente entrar antes. Prever o que realmente acontece é difícil, por exemplo, o Facebook caiu. Mas geralmente se junta antes do IPO ser visto como uma aposta melhor. No dia da minha conclusão da entrevista de uma pessoa em 7 horas, a HR mencionou que eles não são a empresa mais bem remunerada, eles chegam como percentil 60 ... Mas suas RSU estão em excelente oferta. Então, estou supondo que a RSU é igual à opção de estoque que eles estão se referindo? Eu fui oferecido apenas por ações para. Nossa empresa espera ser adquirida nos próximos 90 dias para que eu possa acabar sem opções adquiridas ... O que acontece se adquirimos antes de eu ser adquirido? A outra coisa que o complica é que nossa empresa tem alguns produtos diferentes que oferecemos e aquele que está sendo adquirido é aquele em que trabalho. Isso faz sentido? Normalmente, se a empresa adquirente não quiser mantê-lo, eles podem cancelar você e suas opções não vencidas não serão adquiridas. Se quiserem mantê-lo, eles normalmente trocarão suas opções de opções na nova empresa. Eles terão algum discrição sobre como fazer isso. Espero que eles desejem mantê-lo e irá tratá-lo bem. Agora, após 6 meses, a empresa é adquirida por outra empresa para aquisição de dinheiro. Desde que exerci as minhas opções de ações apenas 4 meses atrás, não serei considerado para os impostos de ganho de capital a longo prazo? Ou posso aguentar os meus certificados de ações por mais 9 meses e, depois, será elegível para taxa de imposto de ganho de longo prazo? Verifique com um advogado para ter certeza, ele pode depender dos detalhes dessa transação específica, mas geralmente eles fecham mais rápido do que isso. Recebemos um pagamento inicial e tiveram uma liberação subsequente do montante do custódia retido. Este pagamento de custódia foi recebido ao longo de 1 ano após a venda da empresa. Qual é este pagamento considerado? É um aumento de capital a longo prazo? Além disso, e quanto a um pagamento de marco que cai em circunstâncias semelhantes? Eu não sou advogado fiscal, então não tenho certeza. Se ele veio através da folha de pagamento regular como um bônus, acho que não são ganhos de capital a longo prazo. Oi Max - Excelente artigo! Eu tenho uma pergunta. Eu juntei-me a uma empresa como um dos primeiros 3 diretores de vendas contratados e foi informado na minha carta de oferta que eu tenho opções pendentes na pendência da aprovação do conselho. Eu já trabalhei para a empresa por 18 ações e não recebi nenhuma documentação sobre minhas opções. Sou continuamente informado de que eles serão aprovados na próxima reunião do conselho, mas isso não aconteceu e recentemente fui informado de que eles seriam aprovados após a próxima rodada de financiamento, mas isso também não aconteceu. O que está acontecendo aqui e qual sua recomendação? Agradeço antecipadamente por sua ajuda. Algo não está certo. Às vezes, a aprovação será deixada fora de uma reunião do conselho. Com muita sorte, você pode ser ignorado duas vezes. Não há uma boa explicação por 18 meses. Mas algo está errado com sua empresa e eu estaria procurando por algo novo. Desculpe a ser o portador de más notícias. Se o CEO tiver uma explicação que realmente faça sentido, sinta-se livre para compartilhá-lo e eu vou deixar você saber o que penso, talvez eu tenha perdido uma explicação inocente, mas isso não parece correto. Muito obrigado por confirmar o que estava pensando, Max. Para o meu conhecimento, o conselho se encontrou várias vezes e nosso CEO repetidamente afirma que a avaliação da nossa empresa está subindo, então eu não ouvi falar de uma rodada para baixo. Tivemos os mesmos investidores originais há alguns anos e recentemente tiveram um novo fluxo de caixa sob a forma de empréstimo, mas ainda buscamos esse investimento externo de capital aberto. I may have another start up offer coming soon and this information will help when I make the decision whether to accept the new position. Thank you again for your help!! Você está comentando usando seu WordPress. Você está comentando usando sua conta no Twitter. Você está comentando usando sua conta do Facebook. Avise-me de novos comentários via. Digite seu endereço para se inscrever neste blog e receber notificações de novas postagens por. Cheque falhou, tente novamente. Desculpe, seu blog não pode compartilhar mensagens. Max Schireson's blog Thoughts on technology and the tech business. Vesting There is a small but necessary catch: Ownership percentage This brings us to the number which is much more important though it is less impressive sounding than the number of shares — what portion of the company do you own. Exercise I talked briefly about exercising options above. Classes of stock Most startups have both common and preferred shares. How much are they worth That is, of course, the big question. Expiration and termination Options typically expire after 10 years, which means that at that time they need to be exercised or they become worthless. How many should you get How many stock options you should get is largely determined by the market and varies quite a bit from position to position. This varies by job level: Taxes Taxes on stock options are complex. What happens to my options if the company is bought or goes public? Max Schireson on August 23, PM on August 25, Max Schireson on August 31, What happens if the company is bought before I was granted options options? In my employment agreement the granting is subject to board approval and that never happened. Max Schireson on September 15, Max Schireson on September 16, I am assuming your options dated from joining full time, so it was a 6 month delay, not a year? Max Schireson on September 18, Benny on November 6, Max Schireson on May 17, How much would you pay to own an undisclosed percentage of my house? DMill-Tech on April 10, Martha on April 28, Max Schireson on April 28, Unfortunately for the subject of your story, probably not. CF73 on May 16, V on June 14, Max Schireson on June 14, Aleksandr Yampolskiy on June 14, Great summary Max, i found it very useful. Benny on June 16, Stephanie P on September 9, Max Schireson on September 10, Sorry for the delay in getting back to you. I hope this helps, — Max. Ken on September 19, Max Schireson on February 1, WhYSS62 on October 18, Taylor on November 7, Very informative post, thank you for sharing! May I contact you off-post for questions? Mrnanda on November 17, Max Schireson on November 17, Sam on January 4, Also, the purchaser then got purchased by a public company…how crappy. Alex on February 1, Max thank you for the terrific article. Options grants almost always have to be approved by the board. AB on February 5, Max Schireson on February 5, Yanna on March 15, Thank you soo much Yanna. Max Schireson on May 20, Rob Townend on April 16, Adriana Galue on April 28, Terrific article thank you! Max Schireson on May 24, Max Zhang on August 20, Max Schireson on October 17, Mike on September 5, How would you explain this scenario? Mike on December 11, Andy on October 15, Andy on October 18, NY on November 6, Max Schireson on Senior 12, LJohn on February 12, LJohn on February 13, Leave a Reply Cancel reply Enter your comment here Fill in your details below or click an icon to log in: required Address never made public. Enviar ao endereço seu nome seu documento de endereço. O post não foi enviado - verifique seus endereços! Desculpe, seu blog não pode compartilhar mensagens.

Managing Stock Option Positions.

3 thoughts on “Stock options for senior management”

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Pensamentos sobre tecnologia e negócios de tecnologia.

Startup stock options explained.

Stock options are a big part of the startup dream but they are often not well understood, even by senior execs who derive much of their income from stock options. Here’s my attempt to explain the main issues employees should be aware of.

“Stock options” as typically granted give you the right to buy shares of stock in the future for a price which is determined today. O preço de exercício & # 8220; & # 8221; is the price at which you can buy the shares in the future. If in the future the stock is worth more than the strike price, you can make money by “exercising” the options and buying a share of stock for the strike price. For example, your are granted 5,000 shares of stock at $4 per share in a startup. 5 years later, the stock goes public and three years after that it’s run up to $200 per share. You can exercise the option, paying $20,000 to buy 5,000 shares of stock which are worth $1,000,000. Congrats, you’ve made a $980,000 pretax profit, assuming you sell the shares immediately.

There is a small but necessary catch: when you are granted your options, they are not “vested”. This means that if you leave the company the week after you join, you lose your stock options. This makes sense; otherwise rather than being an incentive to stay, they’d be an incentive to job-hop as much as possible, collecting options from as many employers as you can. So, how long do you have to stay to keep your options? In most companies, they vest over four years. The most common structure is a “cliff” after one year when 25% of your shares vest, with the remaining shares vesting pro-rata on a monthly basis until you reach four years. Details vary from company to company; some companies vest options over 5 years and some over other periods of time, and not all employers have the cliff.

The cliff is there to protect the company – and all the shareholders, including other employees – from having to give shares to individuals who haven’t made meaningful contributions to the company.

Why should you care about whether that guy who got fired after six months walked away with any options or not? Because those options “dilute” your ownership of the company. Remember each share represents a piece of ownership of the company. The more shares there are, the less value each one represents. Lets say when you join the startup and get 5,000 shares, there are 25,000,000 total shares outstanding. You own .02% – two basis points – of the company. If the company issues another 25,000,000 options or shares over the intervening five years so there are 50,000,000 shares at the IPO (typically either as part of fundraising including an IPO or to hire employees), you’re left with .01% – one basis point or half of your original percentage. You have had 50% dilution. You now make half as much for the same company value.

That said, dilution is not necessarily bad. The reason the board approves any dilutive transaction (raising money, buying a company, giving out stock options) is that they believe it will make the shares worth more. If your company raises a lot of money, you may own a smaller percentage, but the hope is that the presence of that cash allows the company to execute a strategy which enhances the value of the enterprise enough to more than compensate for the dilution and the price per share goes up. For a given transaction (raising $10 million) the less dilutive it is the better, but raising $15 million may be more dilutive than raising $10 million while increasing the value of each existing share.

This brings us to the number which is much more important (though it is less impressive sounding) than the number of shares – what portion of the company do you own. This is often measured in percentage terms, which I think is unfortunate because very few employees other than founders wind up with one percent or even half a percent, so you’re often talking about tiny fractions, which is irritating. I think it is more useful to measure it in “basis points” & # 8211; hundredths of a percent. Regardless of units, this is the number that matters. Por quê?

Lets say company A and company B are both, after lots of hard work, worth $10 billion (similar to Red Hat, for example). Long ago Albert went to work at company A and Bob went to work at company B. Albert was disappointed that he only got 5,000 options, and they were granted at a price of $4 each. Bob was very happy – he was granted 50,000 options at only 20 cents each. Who got the better deal? Depende. Lets say company A had 25,000,000 shares outstanding, and company B had 500,000,000 shares outstanding. After many years and 50% dilution in each case, company A has 50,000,000 shares outstanding so they are worth $200 each and Albert has made a profit of $980,000 on his options ($1 million value minus $20,000 exercise cost). Company B has 1 billion shares outstanding, so they are worth $10 each. Bob’s options net him a profit of $9.80 each, for a total profit of $490,000. So while Bob had more options at a lower strike price, he made less money when his company achieved the same outcome.

This becomes clear when you look at ownership percentage. Albert had 2 basis points, Bob had one. Even though it was less shares, Albert had more stock in the only way that matters.

How many shares outstanding is “normal”? At some level the number is totally arbitrary, but many VC funded companies tend to stay in a similar range which varies based on stage. As a company goes through more rounds of funding and hires more employees, it will tend to issue more shares. A “normal” early stage startup might have 25-50 million shares outstanding. A normal mid-stage (significant revenue and multiple funding rounds, lots of employees with a full exec team in place) might have 50-100 million shares outstanding. Late stage companies that are ready to IPO often have over 100 million shares outstanding. In the end the actual number doesn’t matter, what matters is the total number relative to your grant size.

I talked briefly about exercising options above. One important thing to keep in mind is that exercising your options costs money. Depending on the strike price and the number of options you have, it might cost quite a bit of money. In many public companies, you can do a “cashless exercise” or “same-day-sale” where you exercise and sell in one transaction and they send you the difference. In most private companies, there is no simple way to do the equivalent. Some private companies allow you to surrender some of the shares you’ve just exercised back to the company at their “fair market value”; read your options agreement to see if this is offered. I’ll talk more about “fair market value” below, but for now I’ll just say that while its great to have this option, it isn’t always the best deal if you have any alternative.

The other really important thing to consider in exercising stock options are taxes, which I will discuss later.

In my opinion, the process by which the “fair market value” of startup stock is determined often produces valuations at which it would be very difficult to find a seller and very easy to find buyers – in other words a value which is often quite a bit lower than most people’s intuitive definition of market value. The term “fair market value” in this context has a very specific meaning to the IRS, and you should recognize that this technical meaning might not correspond to a price at which it would be a good idea to sell your shares.

Why is the IRS involved and what is going on? Stock option issuance is governed in part by section 409a of the internal revenue code which covers “non-qualified deferred compensation” & # 8211; compensation workers earn in one year that is paid in a future year, other than contributions to “qualified plans” like 401(k) plans. Stock options present a challenge in determining when the “compensation” is “paid”. Is it “paid” when the option is granted, when it vests, when you exercise the option, or when you sell the shares? One of the factors that the IRS uses to determine this is how the strike price compares to the fair market value. Options granted at below the fair market value cause taxable income, with a penalty, on vesting. This is very bad; you don’t want a tax bill due when your options vest even if you haven’t yet exercised them.

Companies often prefer lower strike prices for the options – this makes the options more attractive to potential employees. The result of this was a de-facto standard to set the “fair market value” for early stage startup options issuance purposes to be equal to 10% of the price investors actually paid for shares (see discussion on classes of stock below).

In the case of startup stock options, they specify that a reasonable valuation method must be used which takes into account all available material information. The types of information they look at are asset values, cash flows, the readily determinable value of comparable entities, and discounts for lack of marketability of the shares. Getting the valuation wrong carries a stiff tax penalty, but if the valuation is done by an independent appraisal, there is a presumption of reasonableness which is rebuttable only upon the IRS showing that the method or its application was “grossly unreasonable”.

Most startups have both common and preferred shares. The common shares are generally the shares that are owned by the founders and employees and the preferred shares are the shares that are owned by the investors. So what’s the difference? There are often three major differences: liquidation preferences, dividends, and minority shareholder rights plus a variety of other smaller differences. What do these mean and why are they commonly included?

The biggest difference in practice is the liquidation preference, which usually means that the first thing that happens with any proceeds from a sale of the company is that the investors get their money back. The founders/employees only make money when the investors make money. In some financing deals the investors get a 2x or 3x return before anyone else gets paid. Personally I try to avoid those, but they can make the investors willing to do the deal for less shares, so in some situations they can make sense. Investors often ask for a dividend (similar to interest) on their investment, and there are usually some provisions requiring investor consent to sell the company in certain situations.

Employees typically get options on common stock without the dividends or liquidation preference. The shares are therefore not worth quite as much as the preferred shares the investors are buying.

That is, of course, the big question. If the “fair market value” doesn’t match the price at which you reasonably believe you could find a buyer, how do you about estimating the real world value of your options?

If your company has raised money recently, the price that the investors paid for the preferred shares can be an interesting reference point. My experience has been that a market price (not the official “fair market value”, but what VCs will pay) for common shares is often between 50% and 80% of the price the investors pay for preferred shares. The more likely that the company will be sold at a price low enough that the investors benefit from their preference the greater the difference between the value of the preferred shares and the common shares.

The other thing to keep in mind is that most people don’t have the opportunity to buy preferred shares for the price the VCs are paying. Lots of very sophisticated investors are happy to have the opportunity to invest in top-tier VC funds where the VC’s take 1-2% per year in management fees and 25-30% of the profits. All told, they’re netting around 60% of what they’d net buying the shares directly. So when a VC buys common shares at say 70% of the price of preferred shares, that money is coming from a pension fund or university endowment who is getting 60% or so of the value of that common share. So in effect, a smart investor is indirectly buying your common shares for around the price the VCs pay for preferred.

If there hasn’t been a round recently, valuing your shares is harder. The fair market value might be the closest reference point available, but I have seen cases where it is 30-60% (and occasionally further) below what a rational investor might pay for your shares. If its the only thing you have, you might guess that a market value would be closer to 2x the “fair market value”, though this gap tends to shrink as you get close to an IPO.

Expiration and termination.

Options typically expire after 10 years, which means that at that time they need to be exercised or they become worthless. Options also typically terminate 90 days after you leave your job. Even if they are vested, you need to exercise them or lose them at that point. Occasionally this is negotiable, but that is very rare – don’t count on being able to negotiate this, especially after the fact.

The requirement to exercise within 90 days of termination is a very important point to consider in making financial and career plans. If you’re not careful, you can wind up trapped by your stock options; I’ll discuss this below.

Occasionally stock options will have “acceleration” language where they vest early upon certain events, most frequently a change of control. This is an area of asymmetry where senior executives have these provisions much more frequently than rank-and-file employees. There are three main types of acceleration: acceleration on change of control, acceleration on termination, and “double trigger” acceleration which requires both a change of control and your termination to accelerate your vesting. Acceleration can be full (all unvested options) or partial (say, 1 additional year’s vesting or 50% of unvested shares).

In general, I think acceleration language makes sense in two specific cases but doesn’t make sense in most other cases: first, when an executive is hired in large part to sell a company, it provides an appropriate incentive to do so; second when an executive is in a role which is a) likely to be made redundant when the company is sold and b) would be very involved in the sale should it occur it can eliminate some of the personal financial penalty that executive will pay and make it easier for them to focus on doing their job. In this second case, I think a partial acceleration, double trigger is fair. In the first case, full acceleration may be called for, single trigger.

In most other cases, I think executives should get paid when and how everyone else gets paid. Some executives think it is important to get some acceleration on termination. Personally I don’t – I’d rather focus my negotiation on obtaining a favorable deal in the case where I’m successful and stick around for a while.

How many stock options you should get is largely determined by the market and varies quite a bit from position to position. This is a difficult area about which to get information and I’m sure that whatever I say will be controversial, but I’ll do my best to describe the market as I believe it exists today. This is based on my experience at two startups and one large company reviewing around a thousand options grants total, as well as talking to VCs and other executives and reviewing compensation surveys.

First, I’ll talk about how I think about grant sizes, then give some specific guidelines for different positions.

I strongly believe that the most sensible way to think about grant sizes is by dollar value. As discussed above, number of shares doesn’t make sense. While percent of company is better it varies enormously based on stage so it is hard to give broadly applicable advice: 1 basis point (.01 percent) of Google or Oracle is a huge grant for a senior exec but at the same time 1 basis point is a tiny grant for an entry level employee at a raw series-A startup; it might be a fair grant for a mid-level employee at a pre-IPO startup. Dollar value helps account for all of this.

In general for these purposes I would not use the 409a “fair market value”. I would use either a) the value at the most recent round if there was one or b) the price at which you think the company could raise money today if there hasn’t been a round recently.

What I would then look at is the value of the shares you are vesting each year, and how much they are worth if the stock does what the investors would like it to do – increases in value 5-10 times. This is not a guaranteed outcome, nor is it a wild fantasy. What should these amounts be? This varies by job level:

Entry level: expect the annual vesting amount to be comparable to a small annual bonus, likely $500-$2500. Expect the total value if the company does well to be be enough to buy a car, likely $25-50k.

Experienced: most experienced employees will fall in to this range. Expect the annual vesting amount to be comparable to a moderate annual bonus, likely $2500-$10k, and the total value if the company does well to be enough for a down-payment on a silicon valley house or to put a kid through college, likely around $100-200k.

Key management: director-level hires and a handful of very senior individual contributors typically fall into this range. Key early employees often wind up in this range as the company grows. Expect the annual vesting amount to be like a large bonus, likely $10k-40k and the total value if the company does well to be enough to pay off your silicon valley mortgage, likely $500k-$1 million.

Executive: VP, SVP, and CxO (excluding CEO). Expect the annual vesting amount to be a significant fraction of your pay, likely $40-100k+, and the value if the company does well to be $1 million or more.

For those reading this from afar and dreaming of silicon valley riches, this may sound disappointing. Remember, however, that most people will have roughly 10 jobs in a 40 year career in technology. Over the course of that career, 4 successes (less than half) at increasing levels of seniority will pay off your student loans, provide your downpayment, put a kid through college, and eventually pay off your mortgage. Not bad when you consider that you’ll make a salary as well.

You should absolutely ask how many shares are outstanding “fully diluted”. Your employer should be willing to answer this question. I would place no value on the stock options of an employer who would not answer this clearly and unambiguously. “Fully diluted” means not just how many shares are issued today, but how many shares would be outstanding if all shares that have been authorized are issued. This includes employee stock options that have been granted as well shares that have been reserved for issuance to new employees (a stock “pool”; it is normal to set aside a pool with fundraising so that investors can know how many additional shares they should expect to have issued), and other things like warrants that might have been issued in connection with loans.

You should ask how much money the company has in the bank, how fast it is burning cash, and the next time they expect to fundraise. This will influence both how much dilution you should expect and your assessment of the risk of joining the company. Don’t expect to get as precise an answer to this question as the previous one, but in most cases it is reasonable for employees to have a general indication of the company’s cash situation.

You should ask what the strike price has been for recent grants. Nobody will be able to tell you the strike price for a future grant because that is based on the fair market value at the time of the grant (after you start and when the board approves it); I had a friend join a hot gaming company and the strike price increased 3x from the time he accepted the offer to the time he started. Changes are common, though 3x is somewhat unusual.

You should ask if they have a notion of how the company would be valued today, but you might not get an answer. There are three reasons you might not get an answer: one, the company may know a valuation from a very recent round but not be willing to disclose it; two the company may honestly not know what a fair valuation would be; three, they may have some idea but be uncomfortable sharing it for a variety of legitimate reasons. Unless you are joining in a senior executive role where you’ll be involved in fundraising discussions, there’s a good chance you won’t get this question answered, but it can’t hurt to ask.

If you can get a sense of valuation for the company, you can use that to assess the value of your stock options as I described above. If you can’t, I’d use twice the most recent “fair market value” as a reasonable estimate of a current market price when applying my metrics above.

One feature some stock plans offer is early exercise. With early exercise, you can exercise options before they are vested. The downside of this is that it costs money to exercise them, and there may be tax due upon exercise. The upside is that if the company does well, you may pay far less taxes. Further, you can avoid a situation where you can’t leave your job because you can’t afford the tax bill associated with exercising your stock options (see below where I talk about being trapped by your stock options).

If you do early exercise, you should carefully evaluate the tax consequences. By default, the IRS will consider you to have earned taxable income on the difference between the fair market value and the strike price as the stock vests. This can be disastrous if the stock does very well. However, there is an option (an “83b election” in IRS parlance) where you can choose to pre-pay all taxes based on the exercise up front. In this case the taxes are calculated immediately, and they are based on the difference between the fair market value and the strike price at the time of exercise. If, for example, you exercise immediately after the stock is granted, that difference is probably zero and, provided you file the paperwork properly, no tax is due until you sell some of the shares. Be warned that the IRS is unforgiving about this paperwork. You have 30 days from when you exercise your options to file the paperwork, and the IRS is very clear that no exceptions are granted under any circumstances.

I am a fan of early exercise programs, but be warned: doing early exercise and not making an 83b election can create a financial train wreck. If you do this and you are in tax debt for the rest of your life because of your company’s transient success, don’t come crying to me.

What if you leave? The company has the right, but not the obligation, to buy back unvested shares at the price you paid for them. This is fair; the unvested shares weren’t really “yours” until you completed enough service for them to vest, and you should be thankful for having the opportunity to exercise early and potentially pay less taxes.

Taxes on stock options are complex. There are two different types of stock options, Incentive Stock Options (ISOs) and Non-Qualified Stock Options which are treated differently for stock purposes. There are three times taxes may be due (at vesting, at exercise, and at sale). This is compounded by early exercise and potential 83b election as I discussed above.

This section needs a disclaimer: I am not an attorney or a tax advisor. I will try to summarize the main points here but this is really an area where it pays to get professional advice that takes your specific situation into account. I will not be liable for more than what you paid for this advice, which is zero.

For the purposes of this discussion, I will assume that the options are granted at a strike price no lower than the fair market value and, per my discussion on early exercise, I’ll also assume that if you early exercise you made an 83b election so no taxes are due upon vesting and I can focus on taxes due on exercise and on sale. I’ll begin with NSOs.

NSO gains on exercise are taxed as ordinary income. For example, if you exercise options at a strike price of $10 per share and the stock is worth $50 per share at the time of exercise, you owe income taxes on $40 per share. When you sell the shares, you owe capital gains (short or long term depending on your holding period) on the difference between the value of the shares at exercise and when you sell them. Some people see a great benefit in exercising and holding to pay long term capital gains on a large portion of the appreciation. Be warned, many fortunes were lost doing this.

What can go wrong? Say you have 20,000 stock options at $5 per share in a stock which is now worth $100 per share. Parabéns! But, in an attempt to minimize taxes, you exercise and hold. You wipe out your savings to write a check for $100,000 to exercise your options. Next April, you will have a tax bill for an extra $1.9 million in income; at today’s tax rates that will be $665,000 for the IRS, plus something for your state. Not to worry though; it’s February and the taxes aren’t due until next April; you can hold the stock for 14 months, sell in April in time to pay your taxes, and make capital gains on any additional appreciation. If the stock goes from $100 to $200 per share, you will make another $2 million and you’ll only owe $300,ooo in long term capital gains, versus $700,000 in income taxes. You’ve just saved $400,000 in taxes using your buy-and-hold approach.

But what if the stock goes to $20 per share? Well, in the next year you have a $1.6 million capital loss. You can offset $3,000 of that against your next years income tax and carry forward enough to keep doing that for quite a while – unless you plan to live more than 533 years, for the rest of your life. But how do you pay your tax bill? You owe $665,000 to the IRS and your stock is only worth $400,000. You’ve already drained your savings just to exercise the shares whose value is now less than the taxes you owe. Congratulations, your stock has now lost you $365,000 out of pocket which you don’t have, despite having appreciated 4x from your strike price.

How about ISOs? The situation is a little different, but danger still lurks. Unfortunately, ISOs can tempt you in to these types of situations if you’re not careful. In the best case, ISOs are tax free on exercise and taxed as capital gains on sale. However, that best case is very difficult to actually achieve. Por quê? Because while ISO exercise is free of ordinary income tax, the difference between the ISO strike price and value at exercise is treated as a “tax preference” and taxable under AMT. In real life, you will likely owe 28% on the difference between strike price and the value when you exercise. Further, any shares which you sell before you have reached 2 years from grant and 1 year from exercise are “disqualified” and treated as NSOs retroactively. The situation becomes more complex with limits option value for ISO treatment, AMT credits, and having one tax basis in the shares for AMT purposes and one for other purposes. This is definitely one on which to consult a tax advisor.

If you’d like to know if you have an ISO or NSO (sometimes also called NQSO), check your options grant paperwork, it should clearly state the type of option.

Illiquidity and being trapped by stock options.

I’ll discuss one more situation: being trapped by illiquid stock options. Sometimes stock options can be “golden handcuffs”. In the case of liquid stock options (say, in a public company), in my opinion this is exactly as they are intended and a healthy dynamic: if you have a bunch of “in-the-money” options (where the strike price is lower than the current market price), you have strong incentive to stay. If you leave, you give up the opportunity to vest additional shares and make additional gains. But you get to keep your vested shares when you leave.

In the case of illiquid options (in successful private companies without a secondary market), you can be trapped in a more insidious way: the better the stock does, the bigger the tax bill associated with exercising your vested options. If you go back to the situation of the $5 per share options in the stock worth $100 per share, they cost $5 to exercise and another $33.25 per share in taxes. The hardest part is the more they’re worth and the more you’ve vested, the more trapped you are.

This is a relatively new effect which I believe is an unintended consequence of a combination of factors: the applicability of AMT to many “ordinary” taxpayers; the resulting difficulties associated with ISOs, leading more companies to grant NSOs (which are better for the company tax-wise); the combination of Sarbanes-Oxley and market volatility making the journey to IPO longer and creating a proliferation of illiquid high-value stock. While I am a believer in the wealthy paying their share, I don’t think tax laws should have perverse effects of effectively confiscating stock option gains by making them taxable before they’re liquid and I hope this gets fixed. Until then to adapt a phrase caveat faber .

Can the company take my vested shares if I quit.

In general in VC funded companies the answer is “no”. Private equity funded companies often have very different option agreements; recently there was quite a bit of publicity about a Skype employee who quit and lost his vested shares. I am personally not a fan of that system, but you should be aware that it exists and make sure you understand which system you’re in. The theory behind reclaiming vested shares is that you are signing up for the mission of helping sell the company and make the owners a profit; if you leave before completing that mission, you are not entitled to stock gains. I think that may be sensible for a CEO or CFO, but I think a software engineer’s mission is to build great software, not to sell a company. I think confusing that is a very bad thing, and I don’t want software engineers to be trapped for that reason, so I greatly prefer the VC system.

I also think it is bad for innovation and Silicon Valley for there to be two systems in parallel with very different definitions of vesting, but that’s above my pay grade to fix.

What happens to my options if the company is bought or goes public?

In general, your vested options will be treated a lot like shares and you should expect them to carry forward in some useful way. Exactly how they carry forward will depend on the transaction. In the case of an acquisition, your entire employment (not just your unvested options) are a bit up in the are and where they land will depend on the terms of the transaction and whether the acquiring company wants to retain you.

In an IPO, nothing happens to your options (vested or unvested) per se, but the shares you can buy with them are now easier to sell. However there may be restrictions around the time of the IPO; one common restriction is a “lockup” period which requires you to wait 6-12 months after the IPO to sell. Details will vary.

In a cash acquisition, your vested shares are generally converted into cash at the acquisition price. Some of this cash may be escrowed in case of future liabilities and some may be in the form of an “earn-out” based on performance of the acquired unit, so you may not get all the cash up front. In the case of a stock acquisition, your shares will likely be converted into stock in the acquiring company at a conversion ratio agreed as part of the transaction but you should expect your options to be treated similarly to common shares.

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It’s hard to sell a company if there is a log of acceleration. That could actually be counterproductive for option holders.

Agree, that’s one of the reasons I think it is warranted only in a few specific cases.

What happens to unvested stock in the case of a cash/stock acquisition? (for a generic Silicon Valley VC funded startup)

Lot of it depends (including whether they keep the employees at all). But often they are converted to options in the new company.

What happens if the company is bought before I was granted my options?

In my employment agreement the granting is subject to board approval and that never happened.

I got new options of the acquiring company (at a SHITTY strike price ) , anything to do about that?

Probably nothing to do about it besides quit (though I am not a lawyer and you might ask one if there is a lot of money involved). How long did you work there without the options being granted? Up to a few months is normal, past that is unusual.

I worked there for 6months part time and another 6months full-time.

Basically the board of directors probably didn’t meet to approve the options of the new employees and when it did it discussed the buyout.

I assume that they said to themselves, let’s not grant these options and grant options of the buying company instead.

Ouch. Can you ask/have you asked asked a few questions: 1. Did the board meet during the time after you accepted the offer and started and prior to the acquisition and how many times? Did it review your proposed grant at the meetimg and if not why not? If it reviewed your proposed grant why did it not approve it? 2. On what basis was your new grant determined? Did they convert the grant in your offer letter based on the terms of the purchase or did they just give you stock in the acquiring company as a new employee of that company?

I am assuming your options dated from joining full time, so it was a 6 month delay, not a year?

While I might be popular online for saying they hosed you and they’re evil, situations like this can be complex. It is possible/likely that the board was in serious discussions about an aquisition for a number of months before it occured. This could have been ongoing from the time you joined, or started shortly afterwards but have been in progress at the first board meeting after you joined.

If this was the case, the board may have been in a very hard situation with respect to valuing the stock options. If the acquisition discussion was credible enough, it would be material information that could force a re-evaluation of the fair market value of the shares. To avoid the risk of grantees (you) being liable for huge tax penalties, they would likely have wanted to retain a third party to do the valuation. Hiring the firm takes time, the valuation takes time, and board approval of the valuation takes time. During that time, the discussions might gave progressed – maybe they got a second higher offer. That could restart the clock.

In any case, even if they were able to complete the valuation and grant the options, the valuation may well have been quite similar to the price offered by the acquirer and those options might have been converted to options in the acquiring company at a similar strike price to the price of your grant. So quite possibly what is at issue is whether your grant could have been granted at a somewhat (say 20 or 30%) lower strike price.

If the value of the stock underlying your new grant (number of shares times strike price) is well in to the six figures or beyond, it may be worth consulting an attorney just in case, but my guess (and I am not a lawyer) is they are going to say that you just had bad timing. If it’s five figures or less, I don’t think its worth spending the legal fees for a small chance at a medium settlement.

What I described is the way this happened in completely good faith with everyone involved trying to do what’s fair and legal for you in a complex situation. That’s not always the case, but I’d start by asking.

You’re thinking the same as I do.

Since the company have been planning an IPO and this buyout came in I’m sure the board have met several times since I joined.

I too think that I should have gotten either an approval or decline of my options , neither was delivered to me, hence I believe this is a direct violation of my employment agreement.

My options never materialized, I basically got the buying company options at a strike price which is the share price in the day of the buyout which means zero profit!

I’m getting really pissed here and I think that this might even have legal implications.

This is 5 figures but I think that the determining factor is that I think this isn’t completely legal , I don’t think they can just ignore this term of the contract just because they’re busy or not sure about the price.

My guess is that you make some enemies with this post. It is clearly to the advantage of the company that the terms of stock options and vesting periods remain opaque.

What if there were liquidity in options? That would be interesting, and wildly dangerous, I imagine, because such liquidity would be so predominantly speculative in the absence of knowledge of company fundamentals.

Possible I suppose, but.

Possible I suppose, but only ill advised companies and VC’s that I’m happy to stay away from.

A successful growing company grants millions of dollars worth of options each year, and I think it works to their advantage to have people understand their value and thus make rational decisions about them.

Re: liquidity, the illiquidity of the _options_ stems from the fact that they are subject to cancellation if you quit as well as some specific contractual terms. Your _shares_ should you exercise your stock can sometimes be liquid even before the company is public. That is certainly the case for well known private companies (eg, Facebook), and sometimes is the case for smaller companies as well; question is can you find an investor who wants to buy the shares.

The biggest issue in liquidity of pre-IPO shares is the company’s cooperation in allowing a potential buyer to see the books. Often this will be restricted for current employees but more open for ex-employees. This can be very complex and the SEC has rules about shareholder counts, how the shares can be offered etc.

Hello, I just received an employee stock option that would allow me to buy shares within five years. Do I have to buy the shares right away? or wait until my company goes public or another company (that is currently in stock trading) will aquire us? If I buy the shares now and after 2 years I left the company or they fired me, do I still have the right for my shares? If still have the right for my shares then I’m willing to expend few thousand dollars for it. I really appreciate your advice.

Really sorry for the delayed reply. Usually you have all 5 years. Usually you can buy some now and some later. Tax issues vary, research them carefully.

well written, and easy to understand…thanks very much.

Well written for sure. An scenario I’d appreciate your feedback on. A small company was bought by a larger one and the employee was given her recalculated options. There are 2 years left on this employees vesting schedule. Without any prior negotiation at time of hire regarding acceleration of vesting, is there any way receive acceleration in case of termination?

Unfortunately for the subject of your story, probably not.

Most folks in small companies are employed “at will”. That means that their employer is under no obligation to keep them employed until the end of their vesting period or for any other reason. They can be fired because of a lack of work for them to do, a desire to hire someone less expensive to do the same job, a desire to restructure and eliminate their job, or because the company is unsatisfied with their work. The same holds true once they’ve joined the big company.

Sometimes companies will offer “packages” to employees that they lay off. This is not done out of obligation but rather to help retain the employees who aren’t being laid off – who might otherwise fear being laid off with nothing and instead take another job. By treating the terminated employees nicely, the remaining employees are less likely to panic.

Normally one should expect to vest only as long as their employment continues. The most common exceptions where acceleration can make sense but usually needs to be negotiated up front are positions where the individual is directly involved in selling the company (CEO, CFO etc) and/or is very likely not to be retained after the acquisition.

How do unvested options work post-IPO? Is an IPO an event that can trigger acceleration, or is this reserved for acquisition typically? Can unvested shares be canceled post-IPO?

Usually they continue vesting through the IPO as normal, with restrictions on selling them for some period of time (

6 months is normal) post-IPO.

It is very unusual for an IPO to trigger acceleration. While it is easy to see an IPO as a destination for a startup, it is really the beginning of a much longer journey. An IPO means that a company is ready to have a broader base of shareholders – but it needs to continue to deliver to those shareholders, thus it needs to continue to retain its employees.

Most options are not cancelable other than by terminating the optionee’s employment or with the optionee’s consent. Details vary and there are some corner cases, but the typical situation is if the company doesn’t want you to collect any further options they’ll fire you. Occasionally companies will give people the option to stay for reduced option grants but that is unusual.

By the way when I say “most” or “usually” I am referring to the typical arrangements in startups funded by reputable silicon-valley-type VCs. Family businesses and business that exist outside that ecosystem of startup investors, lawyers, etc may have different arrangements. If you read some of my posts on private equity owned companies and options, you’ll see that they have a somewhat different system for example.

What happens if you exercise pre-IPO stock options (within 90 days of quitting) and the company never goes public?

Then you own shares that may be hard to sell. The company may be acquired and you might grt something for your shares, or in some circumsances you can sell shares of private companies. But the money you pay to exercise the shares is at risk.

Thank you Max! This entire article and your answer to my question has been the best write up on this topic that I could find on the Internet. Obrigado novamente!

Great summary Max, i found it very useful.

wow i personally know someone (well i guess many people do) who lost everything in the bubble and still owed $$$ in tax due to the exercise and hold you described here. he went bankrupt and had to flee out of state but still writes a hefty check to the IRS each and every month.

Excellent…very well explained. Thanks Max.

Ótimo artigo! I’m trying to learn more about employee stock options. I was granted options 4 years ago and now I’m being laid off so I wanted to make sure I’m taking advantage of the benefits (if there are any.) I received the agreement, signed it, and got a copy of it back signed by the corporate secretary. I never received any other documentation since. The company isn’t doing well, but the options were priced at a penny in the agreement. Should I contact HR or a financial advisor? Just slightly concerned since the company seems a little secretive to me. I have been with them for over 6 years. Thoughts are appreciated 🙂

Sorry for the delay in getting back to you.

Usually after you sign your options agreement, there’s no further paperwork until you exercise.

Usually you have 90 days after leaving until you have to exercise the options, but this varies from plan to plan and the details should be in the paperwork you signed. HR or Finance should be able to help you exercise your options if you want to; If you exercise you’ll pay a penny per share and the shares turn out to be worthless or may turn out to be valuable.

If your instinct is that the company isn’t doing well and the shares will likely not be worth much, the question is whether its worth a gamble. If for example you have 20,000 options at $.01 each, its only $200 to exercise them so it may be worth it even if the odds are against you.

One data point that you will need to finalize your decision is the FMV (fair market value) of the shares for tax purposes. The company should be willing to tell you this; if it is quite a bit more than a penny some taxes will be due on exercise but the shares are more likely to be worth something.

If you can get more specifics about number of shares outstanding, debt, preferences, revenue, cash etc a financial advisor may be able to help; without that they’d would probably be shooting in the dark.

I hope this helps,

Thanks Max, I really appreciate it. After reading your article and doing some research I found out I was looking at the par value, not the exercise price. So in my case, I would be severely underwater. Now I understand! Thanks again for sharing your knowledge!

Max, thanks for the great info. I am considering joining a tech startup and wonder if there are enough benefits for both the company and myself for me to be brought on as an independent contractor vs. an employee? Any info you have or can refer me to would be helpful. Obrigado!

Desculpe o atraso. There are quite a few qualifications that you must meet to work as an independent contractor; I don’t have them handy but a quick google search might turn them up. If you plan to work there full time for the long term, usually employment makes the most sense – though sometimes companies have more leeway to pay much more money to contractors; if that’s the case and they’re willing to do it and you qualify, it might make sense. But even then, you will probably not get benefits or stock options. Boa sorte com sua decisão.

Why shareholder needs to pay again 50% the difference between of subscription price Convertible Prefered Stock (pre-IPO) and common stock IPO price?

The terms of preferred stock vary, not only from company to company but also across different series of preferred stock in a company. I am not quite sure what you’re referring too but it may well be specific to the structure of those securities at your company. A bit of context could help, but the answer is probably going to be some form of “because that’s the rule defined for this form of stock in this situation”.

Very informative post, thank you for sharing! May I contact you off-post for questions?

Desculpe o atraso. I may not have time to answer but feel free to try me first initial last name at gmail.

Hi Max – thanks for the insightful article. I work for a private company (PE owned) that’s expecting an IPO in about 12 months. Half of my stock options have vested. I got them at a price of 3 and the current valuation is now at 4.5 or so. What happens if I leave AFTER the IPO but BEFORE the employee lock-up ends. Do I get to leave with my vested (as of departure date) options or do I need to pay the company to buy them at the granted strike PLUS pay the tax on the gains etc. Thanks.

Putting aside any idiosyncrasies of your specific options agreement, typically you have 90 days after departure to exercise. So within that 90 days you need to pay the strike price and you incur a tax liability. Keep in mind the stock could decline before you can sell, so its not just acash flow exposure, you may wind up selling for less than you paid to exercise. Waiting until you are less than 90 days from the lockup ending reduces risk a lot, but I don’t know the opportunity cost to you.

Obrigado pela ajuda! Pergunta # 8211; I purchased stock and then my company got purchased. by another private company. My understanding is that the main investors lost money on their sale (they sold below what they put into the company). I had common shares, is that why I haven’t seen any payout?

Also, the purchaser then got purchased by a public company…how crappy.

Sorry to hear you didn’t get anything for your shares. Without knowing all the details, it sounds like you’re correct; typically if there isn’t enough to repay the investors, the common shareholders won’t get anything.

Max thank you for the terrific article.

Do you have any experience with seeing employees receive additional option grants with promotions? Is this common or only at key-level positions? I joined the sales team of a 50-person startup at an entry level position about 2 years ago. We’re now at about 100 employees and I’ve been promoted about 1.5 times (first from a lead-gen position to an Account Executive, then after good performance had my quota raised and salary increased, though no title change). I haven’t received any additional option grants but also haven’t asked. Is it reasonable to ask?

Also, say they’ll agree to give me more, what are typical steps that have to happen until they’re officially granted? Is this something that needs to be discussed at the next board meeting, or does the CEO/Exec team have discretion to do this on an ad-hoc basis?

Grande pergunta. It is common but not universal to receive additional grants with significant promotions, but there is wide variety in how these are handled:

& # 8211; Some companies give them shortly after the promotion (approvals take some time)

& # 8211; Some companies review follow-on grants on a semi-annual or annual basis; people who are promoted are typically good candidates to get them.

& # 8211; Some companies (unfortunately, in my view) operate on a squeaky wheel basis where they are only given when people complain.

I would ask your employer what the process is to ensure that your stock is commensurate with your current contribution to the company. Without knowing all the details, it sounds like it may not be given the progress you’ve made.

One situation to consider is that if the value of the company has increased dramatically, it is possible that the grant you got earlier in the company’s history for a more junior position is larger than the grant someone in your current position would get today. For example, if when you joined an entry level employee received 1000 shares and an account exec received 2500, but today an entry level employee receives 250 shares and an account exec receives 600. If this is the case, many companies would not give you additional shares to go with the promotion (but would increase your salary). While this example may sound exaggerated, if the company has twice as many employees, grants may be half the size per employee – often the board will think about how much stock should go to all employees as a whole per year, and now there are twice as many to share the same number of shares. Also often the grants for different roles aren’t nearly as precise as I described, but the principle remains valid even if the grants per level are ranges.

Options grants almost always have to be approved by the board.

Good luck; it sounds like you’re doing well at a growing company so congratulations.

Thanks again Max, very helpful.

i got an offer to work for a startup on a part-time basis keeping my full time job at my current employer. i will be paid only in the form of stock options (0.1%). not sure if this is a good deal.

I’d look at it 2 ways:

1. What is the startup ‘worth’? If its an unfunded early stage idea it may be something like $1-2 million, in which case .1% is $1-2k for example. Of course if the ‘startup’ is Twitter its worth a lot more. In any case whatever that value is, is it fair compensation for your time? How long do you have to stay to vest the options? 1 month? 1 year? 4 years? And how much work are you expected to do?

2. How does your stake compare to other participants and their contribution? Did your two roommates found it in their garage two weeks ago and they’ll each own 49.95 to your 0.1? Or are there 100 full time employees sharing 50% and investors share the rest?

the startup is in a very early stage with about 13 employees. the options vest at 1/48th of the total shares every month for 4 years. i think i need ask more details before i start the work.

this is my first time working for a startup so i am not very clear..

I am new to this whole equity & stock options.. your article is the only basis for my reasoning.. I need your help! My company is a Green Sustainable clothes recycling company.. relatively new Green field.. not sure what are the general vesting schedules like.. any advice?

we negotiated $1k / week + 5% vested equity.. initially when i started back in Oct/ Nov.. now that its time to draft the actual contract, they are saying how 1%/ year vesting is standard, while for whatever reason i thought the 5% would vest over 1-2 years.. how do i approach this? as of now company is worth $1 million. we are constantly loosing $, it will take at least 6 months - 1 year until we start being profitable..

does the evaluation of what i think im worth from what the company is worth today, or based on projections of what we will make in the future?

we only have 1 kind of stock.. any provisions you are recommending to include?

can i ask for a provision to protect myself from taxes and have it be deducted from my equity instead of paying for it our of my pocket?

Thank you soo much.

Desculpe o atraso. I think 4 years is most common, maybe 5 next most, 1-2 years is unusual. I am not sure what else you are asking. If you are asking about taxes on the equity, if it is options there is typically no tax on vesting if the plan is set up properly (which will almost certainly require an attorney).

The IRS will require cash for your tax payments, they don’t accept stock 🙂

How often should a company revalue their privatly held stock options? Any guidelines around that in the accounting standards?

I am not a tax lawyer but I think for tax purposes the valuations are good for a year. If things change (eg, financing, offer to buy the company, or other significant events) you may want to do it more frequently, and for rapidly growing companies that might go public soon you may want to do it more frequently.

Terrific article thank you !

With startups becoming a global tendency, it becomes complicated to create one model that fits all.

Any thoughts on adjusting vesting schedules, cliff periods and accelerations to ventures occurring in high-risk geographical areas? i. e High-risk understood as high volatility & political unrest.

One thing that I do see adjusted globally is some of the details to fit local tax laws – even US-based companies have to administer their plans differently in different jurisdictions.

I am not expert at all but it may make sense to adjust some other parameters; I don’t know how much they vary from the US. Maybe a reader knows??

Great article, now for my question. Been working for a company 3 years, been vested, for example, 100,000 shares, at 5 cents a share. Leaving company, It looks like the period to exerci se, buying the shares will have about 7 more years. When I leave, how long does one usually, have to buy the shares, if they choose. I am a little confused about the 90days mentioned ealier in the article.

Usually the option period is 10 years but only while you are employed. When you leave, the unvestef options go away and you have 90 days to exercise the vested options. Of course it depends on your specific option plan which may be completely different.

I have some vested preferred shares. I’m not sure if or when the company will be acquired or go IPO. What are my options to liquidate them before any event ?

Your option may be to find someone who wants to buy the stock in a private transaction with limited data. Or it may be that the company has to give permission even if you find a buyer. Trading private stock is difficult. Also if you have options, typically you will have to exercise them before you can sell them.

How would you explain this scenario?

Employee shall be entitled to 25,000 Company common share stock options at an exercise price of $6.25 per common share. These stock options shall be deemed to have been granted January 31, 2012 and shall have a term of 3 years from the effective date granted. These stock options shall remain vested for a period of 24 months in which Employee remains in his current position with the Company.

It sounds like you have between 2 and 3 years in which to exercise them. The vesting language is a bit unclear to me. You may want to get some legal advice, I cannot interpret that clearly.

Let me elaborate on this as I am in the middle of an asset acquisition (a division of the company is being bought) that will close on Jan 31, 2015. I am still trying to understand the language above and below and what my options will be once the transaction is complete. The strike price above given seems a bit high. The division is $5mil and was sold for 7x $35mil. How does this work in terms of an asset being acquired as opposed to the entire company?

“In the event that the Company is acquired or successfully undertakes an initial public offering or reverse takeover, the vesting period relating to the stock options shall be removed and Employee shall have the full and unrestricted ability to exercise the stock options.”

As Twitter is going public soon and I am in the last round of interview. If they offer me a job, will there be any impact to my equity offering if I join before they go IPO or will it be the same after they go IPO? Which will be most beneficiary to me?

Typically people expect the price to increase on I and thus try to get in prior. Predicting what actually happens is hard, for example Facebook went down. But generally joining before IPO is viewed as a better bet.

On the day of my 7hrs in person interview conclusion, HR mentioned that they are not the highest paid company around, they come in like 60th percentile… But their RSU are at great offer. So I am guessing RSU is equal to Stock option they are referring to?

Also, if they offer me RSU/Options, is that something I have to pay for at the evaluation of the company even prior to they going IPO?

Great article, I didn’t know anything about stocks, vesting, options, shares until reading this so it’s helped me understand a bit better! I have been working for a start-up for 5 months and am on the typical vesting schedule of 25% after 1 year and another 6% each month after that. I have been offered just over 5000 shares for .0001.

Our company is expecting to be acquired in the next 90 days so I could end up with no vested options… What happens if we get acquired before I am vested? I am sure there a few different scenarios that could play out depending on who buys us but I’d like to know what COULD happen so I can approach HR about it and see what their plan is. I have read on other ‘stock options explained’ websites that my shares could be wiped out, I’ve read they could be accelerated and I have read they could be absorbed into the new company that acquires us… is that correct? The other thing that complicates it is that our company has a few different products we offer and the one that is getting acquired is the one I work on.. so I’ve heard that when that product/company is acquired in 90 days, our team is going to ‘break off’ and move to a different product (within the same company) and continue on as normal. Isso faz sentido?

Depende. Typically if the acquiring company does not want to keep you they can terminate you and your unvested options will not vest. If they want to keep you they would typically exchange your options for options in the new company. They will have some discretion in how to do this. Hopefully they will want to keep you and will treat you well.

Hi Max.. great article.. a quick question.. after 4 years in a startup i changed the jobs and bought all my vested incentive stock options. Now after 6 months the company is acquired by another company for cash buyout. Since I exercised my stock options just 4 months ago, will I be not considered for Long term Capital gain taxes? Or can I hold on to my share certificates for 9 more months and then will I eligible for Long term capital gain tax rate?

My strong suspicion is that you can’t wait 9 months. Check with an attorney to be sure, it could depend on the details of that specific transaction but usually they close faster than that.

Interesting article! Question for you: I was part of a startup that was acquired and had ISO’s. We received an initial payout and had a subsequent release of the escrow amount withheld. This escrow payout was received over 1 year after the sale of the company. What is this payout considered? Is it a long term capital gains? We were paid out through the employer via the regular salary system (taxes taken) and it was labeled as “Other bonus” but it was clearly part of the escrow. Also, what about a milestone payout that falls under similar circumstance? Obrigado!

I am not a tax attorney so I am not sure. If it came through regular payroll as a bonus my guess is that it is not long term capital gains. If it is a lot of money I would talk to a CPA and / or a tax attorney.

Hi Max – Ótimo artigo! Obrigado. Eu tenho uma pergunta. I joined a company as one of the first 3 sales directors hired and was told in my offer letter I have 150,000 stock options pending board approval. I have now been working for the company for 18 months and have not received any documentation regarding my options. I am continually told that they will be approved at the next board meeting but that has not happened and I was recently told they would be approved after the next round of funding but that did not happen either. What is happening here and what is your recommendation? Thank you in advance for your assistance.

Something is not right. Sometimes the approval will be left out of a board meeting. With really bad luck you could be skipped twice. There is no good explanation for 18 months. The ‘best’ situation from a they-are-not-screwing-you perspective that I can think of is that the next round of funding will be a ‘down’ round and they are waiting to give you a lower price. But something is wrong with your company and I would be looking hard for something new. Sorry to be the bearer of bad news. If the CEO has an explanation that really makes sense feel free to share it and I will let you know what I think, maybe I have missed an innocent explanation but this does not sound right.

Thanks so much for confirming what I was thinking, Max. To my knowledge the board has met several times and our CEO repeatedly states the valuation of our company is going up so I have not heard about a down round. We have had the same original investors for a few years and have recently had a new influx of cash in the form of loan but are still seeking that outside VC investment. I may have another start up offer coming soon and this information will help when I make the decision whether to accept the new position. Thank you again for your help!!

All senior management own shares and stock options in.

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