A group of us, former employees of a startup that recently went public on Nasdaq, are seeking advice on how to navigate an unexpected RSU settlement process. We would appreciate insights from those with experience in equity compensation, tax law, or corporate governance.
* The Situation
We worked at a startup for several years and were granted Restricted Stock Units (RSUs). These fully vested upon the company’s IPO in 2024, but the company has set the settlement date as March 15, 2025 (185 days post-IPO, However, we are not allowed to sell the shares until April, if we were to receive them). This means we will only receive the shares then, but there are some aspects of the process that we are unsure about.
* Key Questions We Have
1) Prepaying Taxes in Cash: We have been asked to wire a tax prepayment directly to the company’s bank account before receiving our shares.
Many of us were expecting a sell-to-cover approach (where some shares are withheld for taxes), which is common. We are wondering if this approach—requiring a direct tax prepayment—is standard practice.
2) Forfeiture Clause: The company has stated that if we do not prepay the taxes by March 15, 2025, the RSUs will be permanently forfeited.
We understand that companies have different ways of handling RSU settlements, but we are curious whether this type of forfeiture clause is common. Since RSUs are considered compensation, we would like to understand if there are alternative ways companies typically handle tax withholding.
3) Unclear Tax Calculation Guidance: We have been asked to calculate the withholding tax ourselves based on an estimated stock price.
However, we have not been provided official guidance on how to do this, which makes us concerned about potential errors. If we underpay, we need to send more money within one business day. If we overpay, we have to apply for a tax refund later. We’re wondering how companies typically help employees navigate tax prepayment for RSUs.
4) Difference Between Current and Former Employees:
We understand that current employees have access to a sell-to-cover option, while former employees are required to prepay in cash. We are curious if this type of distinction between current and former employees is typical for post-IPO RSU settlements.
* Seeking Advice from the Community
We are not looking to place blame—we understand that every company has its own way of structuring RSU settlements. However, since we were surprised by these requirements, we are hoping to learn from others who have experienced similar situations.
Some of the key things we would love advice on:
- Have you encountered an RSU settlement process like this before? - Are there alternative methods (e.g., net exercise, structured buyback) that could be proposed? - How do companies usually structure tax withholding for RSUs, particularly for former employees? - Are there legal or negotiation strategies that might be useful in discussing this with the company? - We are hoping to engage in a conversation with the company to explore potential solutions that work for everyone. We truly appreciate any insights from this community.
Thanks in advance!