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Companies will shovel money to their lawyers to set up an ownership structure that benefits the investors and founders, but don't bother to develop a workaround

Companies will shovel money to their lawyers to set up an ownership structure that benefits the investors and founders, but don't bother to develop a workaround to the AMT exercise trap, and that tells you everything you need to know about working at a pre-RSU startup. *Doesn't apply to companies with 10-year exercise windows or other good tricks.

CalChris 6y ago
The AMT Trap. https://www.holloway.com/g/equity-compensation/sections/the-amt-trap https://www.holloway.com/g/equity-compensation/sections/the-...
bhahn 6y ago
I'm curious why ISO exercises were ever added into the AMT income calculation. Exercised shares in private companies are generally very illiquid, and exercised shares in public companies would get taxed on sale, just like any other stock. On the surface, it just seems like a rule that doesn't make sense at all, but likely would never get changed due to the optics of it.
cj 6y ago
I agree with your overall sentiment. Most companies should have a better legal structure that benefit employees. However > Companies will shovel money to their lawyers to set up an ownership structure that benefits the investors and founders This isn’t entirely true. When a new startup goes to a law firm to set this up, even top tier law firms will provide a structure based on prewritten templates that the firm uses will (nearly) all their clients. This means that setting up a company is actually relatively cheap if you use pre-written templates from your law firm. As soon as you make any special requests, it means those templates can no longer be re-used and that’s when the startup needs to shovel money having lawyers rewrite the templates to accommodate special requests / clauses. The blame for this is always put on founders, which isn’t uncalled for. But for real industry wide change to happen, it’s the law firms that need to make it easier for their clients to offer employee-friendly structures so that founders don’t need to pay a premium for employee-friendly structures. Also important is that the entire structure is typically set up very early in the company’s history (usually before the company has any or minimal funding). It’s difficult to justify spending $20,000 to set up a non-standard equity structure vs. $2,000 for the standard docs when the startup may only have just $100k in the bank. Industry change won’t happen without law firms offering cost efficient ways for companies to set up employee friendly structures. The situation is very unfortunate and unfortunately difficult to fix.
- mavelikara 6y ago
  What is incentivizing law firms to do it? It is not as if engineers will say "Oh, is your law firm Cooley? I am joining then". The party that can make industry-wide changes are the VC firms.

CalChris 6y ago

The AMT Trap. https://www.holloway.com/g/equity-compensation/sections/the-amt-trap https://www.holloway.com/g/equity-compensation/sections/the-...

bhahn 6y ago

I'm curious why ISO exercises were ever added into the AMT income calculation. Exercised shares in private companies are generally very illiquid, and exercised shares in public companies would get taxed on sale, just like any other stock. On the surface, it just seems like a rule that doesn't make sense at all, but likely would never get changed due to the optics of it.

cj 6y ago

I agree with your overall sentiment. Most companies should have a better legal structure that benefit employees. However > Companies will shovel money to their lawyers to set up an ownership structure that benefits the investors and founders This isn’t entirely true. When a new startup goes to a law firm to set this up, even top tier law firms will provide a structure based on prewritten templates that the firm uses will (nearly) all their clients. This means that setting up a company is actually relatively cheap if you use pre-written templates from your law firm. As soon as you make any special requests, it means those templates can no longer be re-used and that’s when the startup needs to shovel money having lawyers rewrite the templates to accommodate special requests / clauses. The blame for this is always put on founders, which isn’t uncalled for. But for real industry wide change to happen, it’s the law firms that need to make it easier for their clients to offer employee-friendly structures so that founders don’t need to pay a premium for employee-friendly structures. Also important is that the entire structure is typically set up very early in the company’s history (usually before the company has any or minimal funding). It’s difficult to justify spending $20,000 to set up a non-standard equity structure vs. $2,000 for the standard docs when the startup may only have just $100k in the bank. Industry change won’t happen without law firms offering cost efficient ways for companies to set up employee friendly structures. The situation is very unfortunate and unfortunately difficult to fix.

mavelikara 6y ago
What is incentivizing law firms to do it? It is not as if engineers will say "Oh, is your law firm Cooley? I am joining then". The party that can make industry-wide changes are the VC firms.