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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".
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?
There's no liquid market for Uber shares. The article further states that Uber has taken measures to prevent a secondary market from developing. I wonder what those measures are. I imagine it's straightforward to prevent someone who wants to keep working at Uber from doing a secondary sale, but what sorts of contract terms can Uber put in place to prevent someone from quitting and then selling on the secondary market…
> His ownership stake at the time would have been $300,000. Yet today, that same stake (undiluted) would now be worth $300 million 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".
http://fortune.com/2015/03/23/pinterest-employee-taxes/
Disclosure: I work for Pinterest
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.
It also pretends all of those would be taxed as income when that would likely be AMT.
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.
The IRS guidelines say the spread between grant price and fair market valuation. If there's a secondary market, that's your fair market, not 409A (which is a joke anyway).
Also, most companies use the last public valuation as a basis for 409A valuation rather than hiring someone to do it in a separate process. The investors buying shares are the experts here. Of course there are considerations for preferred vs common stock and things like warrants, but they start at the top line number from the last round.
Why can't they take loan from someone and give a 10% interest in a few weeks?
Uber specifically does not allow this (mentioned halfway the article).
Earlier quoted context omitted.
Uber specifically does not allow this (mentioned halfway the article).
There's no reason they have to find out. You just won the lottery or received an inheritance from a distant relative. How you acquire capital is none of their business.
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. http://fortune.com/2015/03/23/pinterest-employee-taxes/ Disclosure: I work for Pinterest
I left the company.
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 p…
Yes. It's a huge problem - the IRS demands liquid cash in order to pay tax on illiquid in-kind transfers. The problem isn't just in startups with stock options; another big place it arises is closely held businesses. You receive the family business as an inheritance and suddenly you need to pay - in cash - 40% of the value of the business. Such a large cash hit can and does destroy many companies. The solution is of…