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Stripe faces $3.5B tax bill as employees' shares expire

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Re: Stripe faces $3.5B tax bill as employees' shares expire

#51

Post by testfrequency »

Blackthorn wrote: post #33
zamnos wrote: post #21

Earlier quoted context omitted.

> Thus far no successful tech company (that I know of) has screwed over its employees by casually choosing not to have a liquidity event It depends on if you want to rank Foursquare as "successful", but they recently did that, and it was big news in the don't-let-RSUs-expire community. https://www.theinformation.com/articles/the-private-tech-com...

Holy shit. Can't believe that didn't make it to HN. You really should price startup equity compensation at zero. Even if the startup becomes successful.

You must be new to startups.

Uber and Foursquare are often used as examples on what not to do regarding equity and IPOs

Re: Stripe faces $3.5B tax bill as employees' shares expire

#52

Post by lumost »

Blackthorn wrote: post #33
zamnos wrote: post #21

Earlier quoted context omitted.

> Thus far no successful tech company (that I know of) has screwed over its employees by casually choosing not to have a liquidity event It depends on if you want to rank Foursquare as "successful", but they recently did that, and it was big news in the don't-let-RSUs-expire community. https://www.theinformation.com/articles/the-private-tech-com...

Holy shit. Can't believe that didn't make it to HN. You really should price startup equity compensation at zero. Even if the startup becomes successful.

IMO this is one of the main drivers of big tech in recent years. Folks stopped viewing startups as a lottery ticket a few years ago.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#53

Post by danielmarkbruce »

olliej wrote: post #27
toomuchtodo wrote: post #24

Earlier quoted context omitted.

The knife cuts both ways. Just as these stories exist, there are plenty of folks who have fell into life changing or generational wealth through equity comp. Treat it for the lottery ticket it is.

I would treat it as a lottery if I thought it was a lottery. But it isn't a lottery. If a startup _chooses_ not to go public then it I cannot realize any compensation from that valuation - given the founders always seem to be able to, why isn't that option available to the rank-and-file employees? Similarly there have been multiple start ups that sold the controlling class of stock off and rendered all other stock wo…

This take isn't right. Stripe has done the right thing here. They've always been honest about what the comp was, what the risks were, and now they are doing the right thing, again. The employees involved recognize it as such and the only people making disparaging remarks are either not involved or don't understand it.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#55

Post by noahmbarr »

paxys wrote: post #42
noahmbarr wrote: post #22

(Uninvolved growth-stage CFO perspective) The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants' 10 year mark, and face an exercise or "lose it" situation. If you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires. Stripe seems t…

> This is my best guess-- I am not familiar with the Stripe's situation. All of what you said is literally the content of the article.

Other people asked a bunch of q's so I tried to present it a little differently

Key concepts that were net-new from the article: * 10 year concept IRS restriction * Concept of a transfer Block essentially requiring a company sponsored secondary * Idea that Stripe could stay out of it, and just allow (partially) transfer waiver to 3rd party investor * The concept of most startups strong preference against creating liquid wealth events for early employees prior to IPO

Perhaps you knew all of this, but the other commenters didn't seem to have this knowledge top of mind.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#56

Post by rodgerd »

Swizec wrote: post #43
noahmbarr wrote: post #22

(Uninvolved growth-stage CFO perspective) The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants' 10 year mark, and face an exercise or "lose it" situation. If you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires. Stripe seems t…

> to make sure early employees don't get rich before the IPO But why? What's wrong with early people getting wealthy?

They're the wrong sort of people.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#57

Post by [deleted] »

Swizec wrote: post #43
noahmbarr wrote: post #22

(Uninvolved growth-stage CFO perspective) The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants' 10 year mark, and face an exercise or "lose it" situation. If you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires. Stripe seems t…

> to make sure early employees don't get rich before the IPO But why? What's wrong with early people getting wealthy?

[deleted]

Re: Stripe faces $3.5B tax bill as employees' shares expire

#58

Post by raylad »

bink wrote: post #50
raylad wrote: post #19

Earlier quoted context omitted.

Someone here is confused, and it might be me. As I understand it: In a company where the fair market value share price is $1/share, if you get granted 100 options, you owe tax on $0 because options are not taxable. If you get granted 100 RSUs which are all fully vested, you owe tax on $100 because stocks are taxable. If the RSUs are 0% vested you don't owe any tax yet. Then, if the share price goes up to $2 a share,…

If I'm understanding it correctly, the employees won't have a tax bill if they let the options expire, but they are presumably worth millions so they don't want to just throw that money away. If they exercise then they will owe taxes and they will also have no way to sell the shares (currently) to pay the tax bill.

Sure, but options don't expire while you are an employee.

So if Stripe wants to let employees sell stock, they only have to exercise options equal to the number of shares they will sell, then they can use the proceeds to pay the tax.

I still don't understand why there is a tax bill for Stripe.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#59

Post by raylad »

yieldcrv wrote: post #9
raylad wrote: post #6

Earlier quoted context omitted.

If they were the earliest employees the stock should have been at par value, making the tax payment minimal. Later employees typically get options, which don't have the tax issue. So I'm still unclear where the tax bill is coming from.

Because they didn’t get options. Stripe was flirting with going public for so long that they gave RSUs and people were trading the shares on private secondary markets. Those secondary markets have dried up in the general macroeconomic environment, so now this practice is leaving people with their pants down, complete illiquidity.

If they didn't get options, tax would have had to be paid as each RSU vested if it was not paid with an 83b election.

So again, I don't see why Stripe has a tax bill now.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#60

Post by paxys »

olliej wrote: post #16

Oh, look another train wreck caused by a non-public company offering "equity" based compensation.

This article is literally about how a significant number of Stripe employees are going to become multi-millionaires overnight. Where is the "train wreck" exactly?
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