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Why is this even news? This is the case for pretty much every privately-held company in the valley, because the tax law dictates that [1]. When Pinterest change

Why is this even news? This is the case for pretty much every privately-held company in the valley, because the tax law dictates that [1]. When Pinterest changed their exercise window from 90 days to 7 years, it was big news [2]. When you leave a privately-held company, you have to convert your stock options to stocks to hold onto them, and then AMT kicks in and taxes you on the spread and that often hurt a lot. But in the case of these employees mentioned in the article, they are guaranteed to make a huge profit in the tender offer. Next up: evil companies in Silicon Valley invalidate employees' RSU when they leave the company. [1] https://news.ycombinator.com/item?id=9254299 https://news.ycombinator.com/item?id=9254299 [2] https://news.ycombinator.com/item?id=9253497 https://news.ycombinator.com/item?id=9253497

JumpCrisscross 9y ago
> This is the case for pretty much every privately-held company in the valley Many companies allow employees and ex-employees to sell shares.
- Groxx 9y ago
  Being able to sell shares would imply it's a public company, not a private one, right?
  - vishnugupta 9y ago
    I believe the parent is referring to buy back event. In India, Flipkart has done that a few times delivering a handsome cash windfall to it's employees.
  - JumpCrisscross 9y ago
    > Being able to sell shares would imply it's a public company, not a private one, right? "Public" means your shares are registered [1]. "Private" usually means shares offered under Rule 506 of Reg D [2]. Public and private shares can be bought and sold. The processes, and their respective ease and restrictions, vary. Palantir [3] and Airbnb [4], for example, recently bought back their employees' shares. [1] https://www.sec.gov/fast-answers/answersregis33htm.html https://www.sec.gov/fast-answers/answersregis33htm.html [2] https://www.sec.gov/fast-answers/answers-rule506htm.html https://www.sec.gov/fast-answers/answers-rule506htm.html [3] https://www.nytimes.com/2016/06/29/business/dealbook/palantir-buyback-plan-shows-need-for-new-silicon-valley-pay-system.html https://www.nytimes.com/2016/06/29/business/dealbook/palanti... [4] https://www.nytimes.com/2016/08/12/technology/airbnb-and-others-set-terms-for-employees-to-cash-out.html https://www.nytimes.com/2016/08/12/technology/airbnb-and-oth... Disclaimer: I am not a lawyer. This is neither legal nor investment advice.
usaar333 9y ago
The tax law only required it for ISOs. Companies were doing it for Non-qualified Stock Options as well, mostly because they could get away with it.
- phonon 9y ago
  It's actually worse than that--you can have an option that's an ISO if exercised within 90 days of termination, and otherwise an NSO if exercised outside that period (say up to a year, or even 10 years). The only reason to not do it that way is because you hope some leaving employees will just let the options lapse.
paxy 9y ago
There are better ways to manage employee equity, and lots of even the smallest startups do so. E.g. switch to RSUs as early as possible, and have "double-trigger" vesting so taxes are only owed when the shares have a real dollar value.

JumpCrisscross 9y ago

> This is the case for pretty much every privately-held company in the valley Many companies allow employees and ex-employees to sell shares.

Groxx 9y ago
Being able to sell shares would imply it's a public company, not a private one, right?
- vishnugupta 9y ago
  I believe the parent is referring to buy back event. In India, Flipkart has done that a few times delivering a handsome cash windfall to it's employees.
- JumpCrisscross 9y ago
  > Being able to sell shares would imply it's a public company, not a private one, right? "Public" means your shares are registered [1]. "Private" usually means shares offered under Rule 506 of Reg D [2]. Public and private shares can be bought and sold. The processes, and their respective ease and restrictions, vary. Palantir [3] and Airbnb [4], for example, recently bought back their employees' shares. [1] https://www.sec.gov/fast-answers/answersregis33htm.html https://www.sec.gov/fast-answers/answersregis33htm.html [2] https://www.sec.gov/fast-answers/answers-rule506htm.html https://www.sec.gov/fast-answers/answers-rule506htm.html [3] https://www.nytimes.com/2016/06/29/business/dealbook/palantir-buyback-plan-shows-need-for-new-silicon-valley-pay-system.html https://www.nytimes.com/2016/06/29/business/dealbook/palanti... [4] https://www.nytimes.com/2016/08/12/technology/airbnb-and-others-set-terms-for-employees-to-cash-out.html https://www.nytimes.com/2016/08/12/technology/airbnb-and-oth... Disclaimer: I am not a lawyer. This is neither legal nor investment advice.

usaar333 9y ago

The tax law only required it for ISOs. Companies were doing it for Non-qualified Stock Options as well, mostly because they could get away with it.

phonon 9y ago
It's actually worse than that--you can have an option that's an ISO if exercised within 90 days of termination, and otherwise an NSO if exercised outside that period (say up to a year, or even 10 years). The only reason to not do it that way is because you hope some leaving employees will just let the options lapse.

paxy 9y ago

There are better ways to manage employee equity, and lots of even the smallest startups do so. E.g. switch to RSUs as early as possible, and have "double-trigger" vesting so taxes are only owed when the shares have a real dollar value.