3 ms·

Apparently, "forward exercise" (also called an 83(b) election) isn't something The Fine Article's author has ever heard of. Nearly every one of the tax conseque

by rosser 10y ago

Apparently, "forward exercise" (also called an 83(b) election) isn't something The Fine Article's author has ever heard of. Nearly every one of the tax consequences this article bemoans could have been avoided, with just that one move. Yes, it means you need to have the cash on hand, but honestly, taking out a bank loan to forward exercise your option grant would probably be orders of magnitude cheaper than wrestling with the 409a valuation or AMT or any of that garbage — especially for very early stage employees. And it starts the long term capital gains counter earlier, too.

roadnottaken 10y ago
I don't think you can do an 83b for options from a private company, which is what the article is about.
- rconti 10y ago
  Yes, you can. I did precisely this. I even had to take out a personal loan to cover some of the costs, as the value was just starting to ramp leading to the IPO. In the end, I paid hundreds of dollars (or perhaps a thousand?) in interest, but it paid off handsomely as the spread between short term and long term capital gains is large enough to make it worthwhile. But, of course, there's always risk.
  - rosser 10y ago
    Exactly. Imagine you were talking with a very early-stage company (say, to be employee number < 10), with a ~1% grant, at current dilution. It would be so profoundly painful, financially — and in so many different ways at once — to exercise at any other time but immediately upon hire (or at a minimum, in advance of any subsequent liquidity event), in that circumstance.
- rosser 10y ago
  Yes and no. > It is a common misconception, but a Section 83(b) election generally cannot be made with respect to the receipt of a private company stock option. You must exercise the option first and acquire the stock before you can make a Section 83(b) election, and you would only make a Section 83(b) election in that instance if you exercised the option and acquired unvested stock (if the stock acquired on exercise of the stock option was vested, there would be no reason to make a Section 83(b) election). Source: http://www.startuplawblog.com/section-83b/ http://www.startuplawblog.com/section-83b/

by rosser 10y ago

roadnottaken 10y ago

I don't think you can do an 83b for options from a private company, which is what the article is about.

rconti 10y ago
Yes, you can. I did precisely this. I even had to take out a personal loan to cover some of the costs, as the value was just starting to ramp leading to the IPO. In the end, I paid hundreds of dollars (or perhaps a thousand?) in interest, but it paid off handsomely as the spread between short term and long term capital gains is large enough to make it worthwhile. But, of course, there's always risk.
- rosser 10y ago
  Exactly. Imagine you were talking with a very early-stage company (say, to be employee number < 10), with a ~1% grant, at current dilution. It would be so profoundly painful, financially — and in so many different ways at once — to exercise at any other time but immediately upon hire (or at a minimum, in advance of any subsequent liquidity event), in that circumstance.
rosser 10y ago
Yes and no. > It is a common misconception, but a Section 83(b) election generally cannot be made with respect to the receipt of a private company stock option. You must exercise the option first and acquire the stock before you can make a Section 83(b) election, and you would only make a Section 83(b) election in that instance if you exercised the option and acquired unvested stock (if the stock acquired on exercise of the stock option was vested, there would be no reason to make a Section 83(b) election). Source: http://www.startuplawblog.com/section-83b/ http://www.startuplawblog.com/section-83b/