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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

#151

Post by tyre »

caseysoftware wrote: post #142
tyre wrote: post #136

Earlier quoted context omitted.

It’s fair because otherwise you could compensate people for zero tax. For example, you have a CEO that can either be paid: 1) $1m in cash 2) $1m in stock 3) an option grant to buy 1m shares at $0.000001. Each share has a FMV of $1. Without AMT, you could always take (3) and they would get $1m of stock for $1. Tax free.

With (3), they'd be taxed on the gains when they sell. Not "tax free" at all. The difference is that they wouldn't be taxed until the gains were realized not when they were imagined on paper.

The reason we have capital gains is to encourage investment. They're not investing $1 for 1m shares to build something better. They're getting $1m worth of something for $1, risk-free.

That gap between strike price and FMV is much more like compensation than it is an investment.

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

#152

Post by zamnos »

akavi wrote: post #100
nrmitchi wrote: post #89

Earlier quoted context omitted.

Taking out 7-8 figure loans to exercise start-up options in a private company in a time of decreasing valuations and market uncertainty sounds like a pretty poor idea.

You can get loans backed by the shares themselves. Ie, the lender gets x% of the shares, rather than being paid back a specific dollar amount at a later time.

More explicitly, if the shares go to zero, you don't owe any money

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

#153

Post by runako »

danielmarkbruce wrote: post #137
runako wrote: post #123

Earlier quoted context omitted.

> Stripe has done the right thing here. Having worked for a company that (indefinitely) delayed its IPO, I can say that they may be doing the right thing today. But also there were plenty of observers who pointed out contemporaneously that there was no need for them to keep putting off the IPO. Sarbanes didn't put a $200B valuation floor on IPO registrants. I've never taken a company public, so I don't know their rat…

There is also no need for them to do it. Being a public market has downsides. They've been consistent with this message that they may well stay private forever. They never misled anyone. All the folks involved in this are grown adults. If people wanted to work a company which promised to go public, they'd have worked somewhere else. Again, the employees knew it, know it, and Stripe is now doing the right thing, again…

> They never misled anyone

Disclaimer: I don't have direct knowledge of any Stripe compensation plans. However, it is frequently noted (and this article touches on) the notion that Stripe comp plans are equity-heavy, in line with other big tech companies. That equity does not (to my knowledge) pay a dividend. Equity-heavy comp without a market for that equity and no dividend, in the context of a market where comp plans are equity-heavy with liquidity, is perhaps not a direct misrepresentation.

But it is misleading, and I would bet that if they truly planned on staying private indefinitely (which: great!), they would have a mutiny on their hands if they didn't start paying a dividend or providing a market for the equity.

Otherwise, folks have just been working for below-market rates to make the executive team rich. Which reads worse for the management team; I prefer the other interpretation that the leadership just erred in not going public (or selling) sooner.

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

#154

Post by bcrosby95 »

matchagaucho wrote: post #129
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…

IIRC there's still a limit of 2,000 shareholders for private companies. So if those employee options transfer to outside buyers, they potentially hit the 2K limit really fast. btw - Nearly this same set of circumstances forced the FB IPO. Dozens of early employees were allowed to sell their shares pre-IPO, triggering the max private shareholder rule.

IIRC there's no limit, it just triggers a lot of the same compliance regulations as being public.

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

#155

Post by danielmarkbruce »

runako wrote: post #153
danielmarkbruce wrote: post #137

Earlier quoted context omitted.

There is also no need for them to do it. Being a public market has downsides. They've been consistent with this message that they may well stay private forever. They never misled anyone. All the folks involved in this are grown adults. If people wanted to work a company which promised to go public, they'd have worked somewhere else. Again, the employees knew it, know it, and Stripe is now doing the right thing, again…

> They never misled anyone Disclaimer: I don't have direct knowledge of any Stripe compensation plans. However, it is frequently noted (and this article touches on) the notion that Stripe comp plans are equity-heavy, in line with other big tech companies. That equity does not (to my knowledge) pay a dividend. Equity-heavy comp without a market for that equity and no dividend, in the context of a market where comp pla…

They said it could happen. It was all made clear. One can't reasonably claim to be misled when they are told explicitly before they join, when they join and continuously while they are there.

In spite of all that, they are still doing the right thing by employees. Spinning this to suggest the founders were/are doing anything wrong by anyone is nonsensical.

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

#156

Post by Kukumber »

paxys wrote: post #47

The article title is mixing up two different problems, and I think that's what is causing all the confusion in this thread. 1. Stripe has to pay $3.5B in taxes. This is unrelated to employee stock. 2. Lots of long term employees have expiring options, and if they exercised them they would face a massive tax bill. To solve both 1 & 2 Strips is doing an additional raise of $2.3B from private investors which will (1) gi…

raising money only just to pay people's tax from people who want to cash out seems scammy

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

#157

Post by vorpalhex »

sillysaurusx wrote: post #143
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…

Could anyone translate this into “The early employees will get wealthy from this” or “they’ll get slightly more than they would’ve gotten from getting a job at BigCo over 4 years”? My problem with equity grants is that everyone treats them like they’re so valuable, when in fact the EV is usually close to zero. That wouldn’t be so bad if the upside was really good, but dealing with nonsense like this makes them even l…

There are a whole bunch of conditionals here. If you excised your options as soon as you could (and constantly paid small amounts) then you own a good amount of shares.. but don't have anyone to sell to.

I have heard that the average equity grant is ~40k of value. I suspect the median is in a very weird place towards the low end though, if that number is true to begin with.

Options are complicated and timing is crucial. They carry real and meaningful risk.

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

#158

Post by jacquesm »

sbrother wrote: post #102

Why can't stripe let them expire, and then issue new grants to all affected employees with the same nominal value as the expired grants?

Because Stripe as a whole is now much more valuable you'd either be defrauding the tax office or causing the employees to be massively diluted.

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

#159

Post by [deleted] »

ojbyrne wrote: post #133
mertd wrote: post #78

Earlier quoted context omitted.

Good luck hiring or retaining anyone after that while Stripe is still private.

I think the point the previous commentator was trying to make was, why can't they let them expire and issue new options/RSUs of equivalent value to the same people.

[deleted]

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

#160

Post by SamvitJ »

> Winning Competitions > In the presentation, Stripe said it generated $14.3 billion in revenue as it processed $816 billion in payments volume last year. The company’s so-called transaction margin before losses — a measure of net revenue — rose to $3.17 billion, or 0.38% of total volume. That compares with 17 basis points for rival Adyen NV, according to the presentation.

Does anyone else feel these numbers aren't as high as expected? Sure $14B in annual revenue (and margins of ~$3b on that revenue) is nothing to scoff at. But $14B isn't even close to Amazon/Azure cloud big or even Amazon Ads big.

Perhaps Stripe's valuation assumes a steep uptick in this revenue in the years to come?

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