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Handcuffed to Uber

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Re: Handcuffed to Uber

#71

Post by gamblor956 »

yummyfajitas wrote: post #8
adam-a wrote: post #3

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…

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.

Not true at all. For the last year for which data is available, 2013, only 20 inheritances of a small business were subject to the estate tax. [See http://www.cbpp.org/research/ten-facts-you-should-know-about...]

Additionally, estate taxes are paid by the deceased's estate. In the US, inheritors do not pay federal tax on their inheritance, and only 8 states tax inheritors.

Re: Handcuffed to Uber

#72

Post by ploxiln »

xiaoma wrote: post #56

> 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.) Does keeping early employees "handcuffed" essentially as indentured servants until IPO align with YC's ethics policy?

"indentured servants"? That's ridiculous - startup tech workers are paid well compared to the average person, and they face no financial penalties for leaving their jobs if they do not exercise their stock options.

They do face the gnawing possibility that they could be rich, if only they could sell immediately, or keep the options for later, or or or ... if only!

But they can always just find another reasonably interesting job and get on with a pretty good life. I'm as interested in big success as the next guy, but let's be reasonable - these handcuffs are a lot more like "golden handcuffs" than actual handcuffs (or indentured servitude).

Re: Handcuffed to Uber

#73

Post by iamleppert »

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.

And, they have found a spigot on the economy that can provide for returns for these private equity investors. So why even go public?

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.

Carry on worker bee employees; one day you might see those options actually worth something and liquid.

Re: Handcuffed to Uber

#74

Post by DannyBee »

superuser2 wrote: post #57
matchagaucho wrote: post #43

Earlier quoted context omitted.

The latest Uber investment rounds require that employees hold onto their shares for one year after going public. This will prevent employees from flooding the market post-IPO and devaluing the stock.

But the stock will be considered income in the IPO year and subject to withholding, right? So some employees will work for a negative potentially six figure salary (100% withholding + 5-6 figures owed to the IRS) with no way to pay the IRS until they can sell the stock in the next year? That can't be right. How does this work?

RSU's are sold at vest to cover taxes.

Re: Handcuffed to Uber

#75

Post by xiaoma »

ploxiln wrote: post #72
xiaoma wrote: post #56

> 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.) Does keeping early employees "handcuffed" essentially as indentured servants until IPO align with YC's ethics policy?

"indentured servants"? That's ridiculous - startup tech workers are paid well compared to the average person, and they face no financial penalties for leaving their jobs if they do not exercise their stock options. They do face the gnawing possibility that they could be rich , if only they could sell immediately, or keep the options for later, or or or ... if only! But they can always just find another reasonably int…

You disagree in terms of diction. It was an analogy, after all. History doesn't repeat itself. It rhymes.

Do you actually support the practice from an ethical standpoint? Employees are recruited to start-ups with equity. That's a core part of their compensation for their work (for which they likely could have received more salary from Google, Amazon, Facebook, etc). Then after they've already done the work, that compensation can be taken from them if they leave the company.

Do you feel this behavior is ethical?

Re: Handcuffed to Uber

#76

Post by superuser2 »

zwily wrote: post #70
matchagaucho wrote: post #60

Earlier quoted context omitted.

RSUs are "restricted" in the sense that employees do not own them until exercised, which defers the tax burden. Typically, a portion of the RSUs are withheld to cover taxes when exercised.

You don't exercise RSUs. RSUs are taxable as they vest. At my company, a portion of your vesting RSUs are sold every time to pay the tax on them, unless you provide some cash to pay the tax.

Right, I am interested in whether they would do this during the lockup period. It would seem that if employees were contractually obligated to hold their positions, selling to cover taxes wouldn't be allowed.

Re: Handcuffed to Uber

#77

Post by gogopuppygogo »

xiaoma wrote: post #75
ploxiln wrote: post #72

Earlier quoted context omitted.

"indentured servants"? That's ridiculous - startup tech workers are paid well compared to the average person, and they face no financial penalties for leaving their jobs if they do not exercise their stock options. They do face the gnawing possibility that they could be rich , if only they could sell immediately, or keep the options for later, or or or ... if only! But they can always just find another reasonably int…

You disagree in terms of diction. It was an analogy, after all. History doesn't repeat itself. It rhymes. Do you actually support the practice from an ethical standpoint? Employees are recruited to start-ups with equity. That's a core part of their compensation for their work (for which they likely could have received more salary from Google, Amazon, Facebook, etc). Then after they've already done the work , that com…

As long as the employee's enter into the agreement with full transparency that this is how the compensation works then it's completely fair. This isn't the result of some kind of secret court deciding that it's how a company should pay employees. Adults are consenting to this arrangement.

There is only so much "fair" to be had in business. It's not like there aren't 1,000 other "mini ubers" that want to own the market Travis and Co built.

Re: Handcuffed to Uber

#78

Post by Apocryphon »

ploxiln wrote: post #72
xiaoma wrote: post #56

> 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.) Does keeping early employees "handcuffed" essentially as indentured servants until IPO align with YC's ethics policy?

"indentured servants"? That's ridiculous - startup tech workers are paid well compared to the average person, and they face no financial penalties for leaving their jobs if they do not exercise their stock options. They do face the gnawing possibility that they could be rich , if only they could sell immediately, or keep the options for later, or or or ... if only! But they can always just find another reasonably int…

Certainly, golden handcuffs are a much less pressing concern than actual handcuffs that the less fortunate have to deal with. But this seems to highlight that no matter how much you're earning in Silicon Valley, you're still on the lesser side of the asymmetry against the founders, VCs, and management that run this town.

Re: Handcuffed to Uber

#79

Post by arcticbull »

joncalhoun wrote: post #35
jsprogrammer wrote: post #13

Earlier quoted context omitted.

Why would the IRS want to own and manage family businesses?

They wouldn't, and the original poster isn't implying that they would. I believe the argument here is that if the government wants to claim that these shares have a certain monetary value for tax purposes, then the government should stand behind that value and allow you to pay taxes with those shares at their claimed monetary value. The end goal would be to prevent small business (or people with stock options) from g…

Further, I believe that is an option (requirement?) when paying your renunciation tax on abandoning US citizenship. You're required to pay taxes on all your assets as though they were liquidated that day, and to cover the case of illiquid assets such as employee stock options. [1] In this case they will take 30% of the value of the shares at time of disposition. This is something employees holding ISO and NSO could be allowed to opt into on exercise when there is a spread between FMV and strike.

[1] http://www.renunciationguide.com/expatriation-and-tax-detail... (Tax on deferred compensation and non-grantor trusts)

Re: Handcuffed to Uber

#80

Post by YuriNiyazov »

scurvy wrote: post #65
YuriNiyazov wrote: post #50

Earlier quoted context omitted.

If you exercise upon getting hired, there is no tax bill, because there is no spread between FMV and your exercise price. There's only a tax bill later, upon liquidation.

Many (if not most) early stage companies won't allow you to do this. They claim that the "legal costs" are too high. When asked how much it is and offered to cover them, I've been met with blank stares.

I've been met with "but if you quit without having vested all your shares, we'll have to pay you back at FMV!" - and this was a CEO that said this. Staggering ignorance w.r.t. equity.
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