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The real problem is 409A -- the provision should only apply to options in publicly traded stock and other similarly liquid comp. In the long-ago times, companie
by zekevermillion 11y ago
The real problem is 409A -- the provision should only apply to options in publicly traded stock and other similarly liquid comp. In the long-ago times, companies apparently could hand out options with nominal strike prices without any bad tax consequences. Now we have to set the strike price at least equal to "fair market value" on the grant date, even if there's no market for the stock. This imposes a transaction cost toll on early-stage companies, while simultaneously penalizing startup founders and employees.
- Animats 11y agoThat was imposed because companies would reprice stock options for their executives when the stock dropped. Shareholders hate that; they don't get a bailout like that. The pre-IPO valuation thing is a mess. It's probably going away; investors are tired of being clobbered when the price goes down on a company that's supposedly successful.
- zekevermillion 11y agoMakes sense for a public company, but why impose 409A on startups? While we're at it, why do we tax startup founders on restricted stock grants -- should just tax when they sell the stock, or maybe when it is listed on a public market...? These changes ("reforms" in my view) may never happen, or may take a loooong time though.
- walshemj 11y agoIt should only apply on a real liquidity event why every on isn't in SV lobbying there congress and senator reps amazes me.
- hkmurakami 11y ago>lobbying Well it only affects VCs and founders at a secondary or tertiary level. Even early employees at the seed stage aren't that badly affected by it if the founders structure things to minimize capital gains (ex: allow early exercise with a buyback clause). Who is hits the hardest is the post Series A employee. Those with the strongest muscles likely aren't going to go bat for them in Washington quite yet.