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Yes reverse vesting (which is common) means that you start by owning your, say, 33% share from the start and each month you stay your quitting penalty reduces b

Yes reverse vesting (which is common) means that you start by owning your, say, 33% share from the start and each month you stay your quitting penalty reduces by 1%. So if you quit 1 month in you need to sell back 32% at basically no cost. Since you own all the stock up front the founder participates fully in shareholder voting and you don't get taxed for receiving valuable stock later (although there might be issues with the actual reverse vesting agreement from a tax law standpoint as it is a form that ties your employment with benefits).

berdario 5y ago
That's interesting, I never heard of reverse vesting. I thought you'd be liable for capital gains tax (since you're making a "gift to the company/cofounder", you'd have to use the real market value of the gift to compute CGT), but it seems that the tax rules have a special case defined exactly for this circumstance: https://www.gov.uk/gift-holdover-relief https://www.gov.uk/gift-holdover-relief (of course, this depends on jurisdiction)
- glenngillen 5y ago
  At the risk of making sweeping generalisations about tax law interpretations in multiple jurisdictions… I’ve lived in numerous countries and they’ve all applied either one or both of the following to such a situation: * the shares are deemed “at risk” because of the exit clause, and so are not yet taxable. In Australia _I think_ you need to explicitly declare that treatment in the first tax return that the event happens, and you’d be losing some of the benefit of the long term capital gains tax discount as a result. I’d need to double check with my accountant on the specifics, but I know he suggested such a thing at one point. * the nominal value at the time is tiny fractions of a cent per share because the company has no assets or income. So you just take the tax hit, which ends up being something like $1.

berdario 5y ago

That's interesting, I never heard of reverse vesting. I thought you'd be liable for capital gains tax (since you're making a "gift to the company/cofounder", you'd have to use the real market value of the gift to compute CGT), but it seems that the tax rules have a special case defined exactly for this circumstance: https://www.gov.uk/gift-holdover-relief https://www.gov.uk/gift-holdover-relief (of course, this depends on jurisdiction)

glenngillen 5y ago
At the risk of making sweeping generalisations about tax law interpretations in multiple jurisdictions… I’ve lived in numerous countries and they’ve all applied either one or both of the following to such a situation: * the shares are deemed “at risk” because of the exit clause, and so are not yet taxable. In Australia _I think_ you need to explicitly declare that treatment in the first tax return that the event happens, and you’d be losing some of the benefit of the long term capital gains tax discount as a result. I’d need to double check with my accountant on the specifics, but I know he suggested such a thing at one point. * the nominal value at the time is tiny fractions of a cent per share because the company has no assets or income. So you just take the tax hit, which ends up being something like $1.