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Note there’s some subtlety to this example. That employee would have had to have exercised the options aand held the stock for five years at least. Which they
by mikeryan 5y ago
Note there’s some subtlety to this example. That employee would have had to have exercised the options aand held the stock for five years at least. Which they have apparently but I don’t know how common that is.
This is mostly going to affect not employees, but individual angels.
- toomuchtodo 5y agoI have illiquid equity this would apply to, from time at a startup as an early employee.
- mikeryan 5y agoI’ve been researching this a bit but still a bit new. Can you explain how your illiquid affected assets work? My understanding was that this affected only stock in hand. Which can be difficult to turn but should in theory be sellable?
- toomuchtodo 5y agoExercised options convert into shares, but there has to be a market for those shares, management approval can be required for a transfer, etc. If the growth rate of the shares value is greater than other investments, you might choose to hold the shares until sometime in the future, which can make an unplanned or premature liquidation suboptimal.
- rkk3 5y ago> This is mostly going to affect not employees, but individual angels. Not sure why you would think this, early stage employee's (ignoring co-founders) are going to have a much larger stake in the business than most angels.
- mrkurt 5y agoBecause employees probably haven't exercised their options.
- rkk3 5y agoIt's common for people to join before funding and be compensated in stock.
- mikeryan 5y agoMaybe I’m wrong but I’d think most early employees benefits are wrapped up in options that have not been exercised.
- rkk3 5y agoMany people join companies early enough to be compensated in equity, not options and also don't have the title/requirement of "co founder". People also early exercise.
- 6gvONxR4sf7o 5y agoLots of people still get options that expire pretty soon after leaving a company, right? So unless you want to be stuck at one company, you have to exercise.
- romanhn 5y agoI'm an example of a not-even-particularly-early employee that joined a startup at Series A, exercised the majority of my options almost five years ago, and have been holding on to the now-public shares with the intent of taking advantage of QSBS. I have literally watched the stock go up and down without pulling the trigger because of the promised tax breaks. Pulling the rug from underneath me is not what I would call ethical. There are many other early employees in my cohort doing the same.
- ohashi 5y agoDoes it seem ethical never paying any income tax? I understand why some people will be upset, making less money than they expected. But if you were to judge the system blindly without knowing if you were going to be in a position to take advantage of it or not, does it seem fair? I think it would be hard to argue it's a good policy that some people pay zero taxes, especially on large sums of income. Simply paying capital gains which is below normal income rate seems like a decent compromise. Why should it be treated any different?
- romanhn 5y agoThe ethics I'm disputing are those of not grandfathering in those folks that have made financial decisions based on existing tax law. I would have made very different calls (quite likely more beneficial to my situation) had I not been relying on QSBS. I have no problems paying taxes in general, as one would with RSUs, for example.