3 ms·

> Under standard terms, can they sell their options Under standard terms, options can't be sold, ever. Shares that were purchased from options that were early-

> Under standard terms, can they sell their options Under standard terms, options can't be sold, ever. Shares that were purchased from options that were early-exercised and have not vested can be forcibly repurchased at the company's choice (not employee's choice) upon termination. Shares that were purchased from options that had already vested can only be sold if there's a secondary market at that moment, but presumably Juul is not laying off a thousand employees at the same time as it's raising external money, so no.

xiaolingxiao 6y ago
My apologies, somewhat new to the details of this. > ... can be forcibly repurchased at the company's choice ... For the sake of argument, what is the repurchase price here, and if the company "repurchase" it, does the money go to the employees?
- alexpetralia 6y ago
  It is detailed in the Employee Stock Plan. I believe it is often the share price on the date of grant (yes, when you started; yes, it is a good deal for the company). Nobody reads the Employee Stock Plan however, and companies can behave pretty poorly (but legally) as a result. For the curious, you will commonly see such onerous terms in YC startups: https://www.clerky.com/yc-stock-plan-forms https://www.clerky.com/yc-stock-plan-forms
  - xiaolingxiao 6y ago
    hmm... so just to be absolutely clear: employees who purchased shares before the excercise date will actually lose money if the company forcefully repurchase it back
    - munk-a 6y ago
      There are some terminology confusions here possibly. Usually options have three associated dates: grant, vest and exercise. The grant date is when stock options are granted to an employee - this is usually the first time the employee will have heard of their access to the options but if they are fore-warned of the options before a formal grant and schedule is release then they may be ineligible for any immediate vesting (generally immediate vesting triggers must happen after the grant date). The vesting date is when an option becomes eligible to exercise - on that date the grantee receives the ability to purchase shares in the company according to the strike price laid out in the options grant. Lastly you have the exercise date, that's the date on which you actually exchange some cash for some real shares in the company - after this point those shares are you personal property and are fully owned by you with no obligations to sale (though obligations around the manner of sale usually remain) - a company could declare bankruptcy but you can retain those shares forever. Just as a note - I'm not a lawyer or an accountant, none of the information above should be construed as financial or legal advice and might just be wrong... if you're actually dealing with an options grant speak to a lawyer.
    - bweitzman 6y ago
      From the Clerky docs: > The company shall ... for a period of three months from such date to repurchase all or any portion of the Unvested Shares (as defined below) held by Purchaser as of the Termination Date at the original purchase price per Share (adjusted for any stock splits, stock dividends and the like) You wouldn't lose any money, they'd basically reverse the early exercise.
- drfuchs 6y ago
  I think a bunch of the replies are missing out on the "why". Somewhat simplified: Employer: Welcome aboard. You get 1000 shares vesting over 4 years. They're currently worth $1 per share, which will be your price no matter when you buy them from us. You can buy the ones that have vested at any time until you leave, but you can't sell them until we've gone public. You: Great! Employer: You know, there's a tax trap you could fall into when you leave, whether that be before the 4 years are up, or after. If we haven't IPO'd yet, but we've done a series C at $10/share, you will surely want to buy them as you leave. But you can't sell them yet, and the kicker is that the IRS says that the act of buying them for $1,000 when they're worth $10,000 means you have a $9,000 profit in the transaction, and they'll want to collect taxes on that (say, $3,000). And you may not have the cash to manage that. Even if you do, and then the stock craters later, and you've already paid the taxes, you don't get a refund of the $3,000 in tax the next filing season; rather, you get to subtract $3,000 from any other stock gains you have (in any subsequent year), should you be so lucky. Oh, and even if we have gone public by the time you leave, if you want to hold onto your shares, you've still got exactly the same problem: pay tax now, be out the cash, and lose big if the stock tanks. You: Fooey. Employer: But! Have we got a deal for you! It turns out that the IRS says it's fine if you kind-of buy your shares from us now, for $1,000. (Frequently at startups: We'll even give you a bonus to cover it!) Then, when you leave after 5 years, it's a no-op as far as the IRS is concerned, and you can hold the shares until you want to sell, and at that point you have a gain that you pay taxes on, which you can certainly pay out of your cash profits! You: Super! Employer: The only thing is, if you leave, say, after 3 years, really you would have only vested on 3/4 your shares, so what we'll do is only hand you 750 shares (that you vested on), and a $250 refund of the rest of the $1,000 you gave us. You: Yes, that's more than fair!
  - drfuchs 6y ago
    Fooey: Make that "... you get to subtract $9,000 from any other stock gains you have..."
munk-a 6y ago
I'm quite confused - how were shares exercised into stock before they vested? Aside from that weirdness a share in a company is yours and I'm quite skeptical you could be forced to sell it back to the company - what _is_ common is that the grantor will reserve the right of first purchase. If you decide to sell your vested and exercised options to a third party (say a random friend) you cannot legally transact that without first offering the companies the ability to purchase it at the price of their choosing. The result of this is that vested and exercised shares are usually a terrible idea in nearly every scenario - except when that action might result in some tax benefits from long term investment[1]. 1. Some jurisdictions waive capital gains taxes on sales of stock if the shares were held for a "long" time usually several years.
- JumpCrisscross 6y ago
  > how were shares exercised into stock before they vested? Early exercise.
  - munk-a 6y ago
    I think you're confusing vested stock with "fully vested options" which is quite understandable as the terms are terrible... I may be wrong as I have the most experience with Canadian options but I believe in this scenario some vested options of a non-fully vested option grant were exercised? I.e. you have a vesting schedule of 100/year for five years and on year two exercise 180 options to buy - that wouldn't exceed the quantity of vested options that are available to buy though. Do I have this right or am I misunderstanding the scenario? Edit: Apparently the Canadian portion is important - US options are wack and work totally differently to normal options!
    - JumpCrisscross 6y ago
      > you have a vesting schedule of 100/year for five years and on year two exercise 180 options to buy - that wouldn't exceed the quantity of vested options that are available to buy though Not quite. Say one has a vesting schedule of 100/year for 5 years. Early exercise would allow one to "purchase" 500 shares on day 1, with the caveat that they be returned if the vesting schedule isn't met, e.g. if the employee leaves on day 2. > US options are wack and work totally differently to normal options "Normal" options, European-style options, make up the minority of instruments described by the term "options". Stock options are negotiated instruments. They vary wildly from case to case. Certain amount of consolidation occurs in different jurisdictions as a result of tax codes. But in a global scheme, early exercise is entirely normal for employee stock options.

xiaolingxiao 6y ago

My apologies, somewhat new to the details of this. > ... can be forcibly repurchased at the company's choice ... For the sake of argument, what is the repurchase price here, and if the company "repurchase" it, does the money go to the employees?

alexpetralia 6y ago
It is detailed in the Employee Stock Plan. I believe it is often the share price on the date of grant (yes, when you started; yes, it is a good deal for the company). Nobody reads the Employee Stock Plan however, and companies can behave pretty poorly (but legally) as a result. For the curious, you will commonly see such onerous terms in YC startups: https://www.clerky.com/yc-stock-plan-forms https://www.clerky.com/yc-stock-plan-forms
- xiaolingxiao 6y ago
  hmm... so just to be absolutely clear: employees who purchased shares before the excercise date will actually lose money if the company forcefully repurchase it back
  - munk-a 6y ago
    There are some terminology confusions here possibly. Usually options have three associated dates: grant, vest and exercise. The grant date is when stock options are granted to an employee - this is usually the first time the employee will have heard of their access to the options but if they are fore-warned of the options before a formal grant and schedule is release then they may be ineligible for any immediate vesting (generally immediate vesting triggers must happen after the grant date). The vesting date is when an option becomes eligible to exercise - on that date the grantee receives the ability to purchase shares in the company according to the strike price laid out in the options grant. Lastly you have the exercise date, that's the date on which you actually exchange some cash for some real shares in the company - after this point those shares are you personal property and are fully owned by you with no obligations to sale (though obligations around the manner of sale usually remain) - a company could declare bankruptcy but you can retain those shares forever. Just as a note - I'm not a lawyer or an accountant, none of the information above should be construed as financial or legal advice and might just be wrong... if you're actually dealing with an options grant speak to a lawyer.
  - bweitzman 6y ago
    From the Clerky docs: > The company shall ... for a period of three months from such date to repurchase all or any portion of the Unvested Shares (as defined below) held by Purchaser as of the Termination Date at the original purchase price per Share (adjusted for any stock splits, stock dividends and the like) You wouldn't lose any money, they'd basically reverse the early exercise.
drfuchs 6y ago
I think a bunch of the replies are missing out on the "why". Somewhat simplified: Employer: Welcome aboard. You get 1000 shares vesting over 4 years. They're currently worth $1 per share, which will be your price no matter when you buy them from us. You can buy the ones that have vested at any time until you leave, but you can't sell them until we've gone public. You: Great! Employer: You know, there's a tax trap you could fall into when you leave, whether that be before the 4 years are up, or after. If we haven't IPO'd yet, but we've done a series C at $10/share, you will surely want to buy them as you leave. But you can't sell them yet, and the kicker is that the IRS says that the act of buying them for $1,000 when they're worth $10,000 means you have a $9,000 profit in the transaction, and they'll want to collect taxes on that (say, $3,000). And you may not have the cash to manage that. Even if you do, and then the stock craters later, and you've already paid the taxes, you don't get a refund of the $3,000 in tax the next filing season; rather, you get to subtract $3,000 from any other stock gains you have (in any subsequent year), should you be so lucky. Oh, and even if we have gone public by the time you leave, if you want to hold onto your shares, you've still got exactly the same problem: pay tax now, be out the cash, and lose big if the stock tanks. You: Fooey. Employer: But! Have we got a deal for you! It turns out that the IRS says it's fine if you kind-of buy your shares from us now, for $1,000. (Frequently at startups: We'll even give you a bonus to cover it!) Then, when you leave after 5 years, it's a no-op as far as the IRS is concerned, and you can hold the shares until you want to sell, and at that point you have a gain that you pay taxes on, which you can certainly pay out of your cash profits! You: Super! Employer: The only thing is, if you leave, say, after 3 years, really you would have only vested on 3/4 your shares, so what we'll do is only hand you 750 shares (that you vested on), and a $250 refund of the rest of the $1,000 you gave us. You: Yes, that's more than fair!
- drfuchs 6y ago
  Fooey: Make that "... you get to subtract $9,000 from any other stock gains you have..."

munk-a 6y ago

I'm quite confused - how were shares exercised into stock before they vested? Aside from that weirdness a share in a company is yours and I'm quite skeptical you could be forced to sell it back to the company - what _is_ common is that the grantor will reserve the right of first purchase. If you decide to sell your vested and exercised options to a third party (say a random friend) you cannot legally transact that without first offering the companies the ability to purchase it at the price of their choosing. The result of this is that vested and exercised shares are usually a terrible idea in nearly every scenario - except when that action might result in some tax benefits from long term investment[1]. 1. Some jurisdictions waive capital gains taxes on sales of stock if the shares were held for a "long" time usually several years.

JumpCrisscross 6y ago
> how were shares exercised into stock before they vested? Early exercise.
- munk-a 6y ago
  I think you're confusing vested stock with "fully vested options" which is quite understandable as the terms are terrible... I may be wrong as I have the most experience with Canadian options but I believe in this scenario some vested options of a non-fully vested option grant were exercised? I.e. you have a vesting schedule of 100/year for five years and on year two exercise 180 options to buy - that wouldn't exceed the quantity of vested options that are available to buy though. Do I have this right or am I misunderstanding the scenario? Edit: Apparently the Canadian portion is important - US options are wack and work totally differently to normal options!
  - JumpCrisscross 6y ago
    > you have a vesting schedule of 100/year for five years and on year two exercise 180 options to buy - that wouldn't exceed the quantity of vested options that are available to buy though Not quite. Say one has a vesting schedule of 100/year for 5 years. Early exercise would allow one to "purchase" 500 shares on day 1, with the caveat that they be returned if the vesting schedule isn't met, e.g. if the employee leaves on day 2. > US options are wack and work totally differently to normal options "Normal" options, European-style options, make up the minority of instruments described by the term "options". Stock options are negotiated instruments. They vary wildly from case to case. Certain amount of consolidation occurs in different jurisdictions as a result of tax codes. But in a global scheme, early exercise is entirely normal for employee stock options.