> <i>Not only does it not allow employees to sell their shares to secondary buyers, it also won’t allow them to use services like those offered by 137 Ventures, which makes loans to founders and early employees using their stock as collateral. (Snapchat, Dropbox, and Airbnb have similar policies.)</i><p>Does keeping early employees "handcuffed" essentially as indentured servants until IPO align with YC's ethics policy?
Pinterest allows employees to hold onto their options for seven years after leaving (if they stay at the company for two years) to avoid this scenario. I think there are a few other companies that have done similar things.<p><a href="http://fortune.com/2015/03/23/pinterest-employee-taxes/" rel="nofollow">http://fortune.com/2015/03/23/pinterest-employee-taxes/</a><p>Disclosure: I work for Pinterest
What happens if they decide to keep the company private? Travis, the CEO of Uber, has stated many times he feels like going public isn't needed anymore because of all the extreme amounts of capital available in the private market.<p>And, they have found a spigot on the economy that can provide for returns for these private equity investors. So why even go public?<p>To me, this just seems like a well thought out plan to keep employees locked into the company while not allowing them to ever exercise their equity, and keep the return focused on those who have provided capital. The "capital class" if you will.<p>Carry on worker bee employees; one day you might see those options actually worth something and liquid.
I am currently dealing with this issue, though on a smaller scale.<p>The moral of the story is to forward exercise options if you can. Basically what this means is you pay to exercise on your start date. If you quit or get pink slipped before the standard one year cliff, the company does a buyback. Otherwise, the shares vest as per your vesting schedule. You can potentially avoid a lot of the AMT nastiness this way, and start the clock on long-term gains treatment on day one.<p>That said, companies really should scrap the 90 day exercise window. Uber et al want to avoid employees selling shares on side markets. If they just allow them to hold onto their options for years, most will sit on them rather than feel rushed to sell. I know they want to retain talent, but they should be doing that via rewards versus punitive measures.<p>In any case, its worth it to spend a couple hundred bucks on a tax expert to figure out in advance how to handle options so you don't get burned by taxes on fictional gains.
One thing to keep in mind is that you might not have until next April 15th to pay your taxes after exercise. If the exercise benefit is large enough compared to your typical income, you might owe estimated taxes that quarter.
This article is wrong. Option strike prices and taxation are based on the 409A "fair market" valuation, not private valuations achieved during fundraising. Move the decimal one place to the left and the numbers in the article get a bit more realistic.
I draw the line[1] at amending the bylaws to prevent secondary sales. This just seems wrong to me.<p>[1] The line being where your company ceases to be ethical at its core.
I'm far more curious about what will happen when these companies start seeing significant portions of their workforce facing expiring option plans...
I've not been in the position of buying options before, but is that really how the tax system works? I understand you have to pay tax on income from shares, but if you're buying shares you haven't had any income from them at that point right? I would have thought you'd just pay tax on any money you received when you sold the shares. Curious to know if that's how it works in the UK as well as the US, anyone have any pointers?
What happens if someone is fired? Surely they wouldn't have to exercise their options then, but it also seems ridiculous that they would lose them.
I recently got an offer from Uber (didn't accept for various reasons), so I have a couple of data points. In the last two years, they started offering RSUs, not options, that addressed this issue. And two years ago, they had roughly 200 engineers vs 2000+ engineers now. The issues they had 2 years ago are different, as was the business, it wasn't nearly as ubiquitous and now since they offer RSUs, there isn't the same level of problems.<p>So it's another hit piece on Uber that is completely unfounded.
<i>Uber’s position is that if it learns [of a sale or loan] that goes around its share-transfer restrictions, there will be consequences</i><p>What consequences?
><i>His ownership stake at the time would have been $300,000. Yet today, that same stake (undiluted) would now be worth $300 million</i><p>And at one point Elizabeth Holmes was worth billions, emphasizing that until you the have money in your bank account don't be tallying how much you're "worth".
Just another instance on why an employee shouldn't consider stock options as adequate equivalent to compensation.<p>In theory, those employees were promised to receive x shares of the company that now (partly due to their personal performance) are worth some significant amount.<p>In fact, that was a lie and they are not actually able to receive that part of their compensation despite having been promised and earned it, vested, etc.<p>Beware of scams (the legal details cause similar sized of equity options to have extremely different de facto value) and/or treat the offered equity as having near-zero value when comparing compensation offers from different employers.
Why is it the norm that employees even need to pay cash to buy their options? Why don't companies set the exercise price to zero?
Or if one must have a non-zero exercise price - why isn't there a way to do something like a "cashless exercise"? (i.e. buy your vested options by selling a small fraction of them back to the company).
Hmm. I've heard that Uber does have a stock buyback plan in place for employees.<p>Maybe there are limitations on how much can be exercised/sold, so that someone with $300mm post-option exercise can't exercise their whole position.
In the past, when my wife has had options, we've always been able to use cash from the exercise and immediate sale to fund the transaction, with no cash out of pocket. Is this not an option available to Uber employees?
I am not familiar with american tax law, why do you need to pay tax on buying share options? The reasoning behind this law?<p>We have capital gains tax which i believe is only taxed on sale of the shares.
This is why what is happening with the digitization of private equity through blockchain technologies is going to make this kind of thing completely obsolete.<p><a href="https://blog.coinfund.io/explaining-blockchain-to-traditional-investors-through-growth-capital-2ca61971075c#.60bguvmr2" rel="nofollow">https://blog.coinfund.io/explaining-blockchain-to-traditiona...</a>