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Ask HN: Former employees' RSUs at risk after startup's IPO

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Re: Ask HN: Former employees' RSUs at risk after startup's IPO

#51

Post by breakds »

mattzito wrote: post #50
bjtunfs wrote: post #46

Earlier quoted context omitted.

Yes, all former employees (current employees that hold RSUs are offered sell-to-cover, no worries on upfront tax by cash). And yes, they are RSUs. As for options, ex-employees need to pay to buy options when leaving the company within 90 days.

Well, for options it's more complicated than that - you can have ISOs that convert to NSOs to allow people to defer having to exercise illiquid options when they leave the company. So that's where my options question was coming from - the scenario you describe is VERY common in a scenario where ISOs have converted to NSOs upon leaving the company. But okay, you have RSUs - how familiar are you with your agreement? It…

> It could have been a double trigger vesting arrangement, where the shares "semi-vest" over time, but then they don't fully vest until a liquidity event, at which point poof suddenly all of those ghost shares become REAL shares.

Exactly this.

> If that's the case, they likely baked in a process for employees to have those shares withheld, or auto-sold during the lockup period. It's all tied in with their HR system and other payroll processes to make that easy.

In the agreement, they said this is up to the company, and the company chose the "pay tax to me or forfeit" option.

> There are companies that will loan you money to cover vesting costs or these types of situations - they'll do it at shitty rates, but if the options are losing out on a windfall or losing an extra 10-20% on the windfall, it's worth considering.

Thanks for this advice. Agree that this seems like a viable approach. Appreciate it!

Re: Ask HN: Former employees' RSUs at risk after startup's IPO

#52

Post by rootsudo »

danielmarkbruce wrote: post #14
hansonkd wrote: post #6

> We are curious if this type of distinction between current and former employees is typical for post-IPO RSU settlements. I'm watching this thread, but just as a reminder that it benefits the company to be as vague and complicated as possible for ex-employees trying to exercise their equity rights. You and your equity are effectively dead weight to the company now and it's in their best interest to get you to forfei…

This is cynical and more frequently wrong that right. In most cases, the company is trying to avoid securities regulation screw ups, tax screw ups, other regulatory or legal screw ups. Sometimes they are overly conservative and it seems annoying, but that's what they are doing. As an example, Stripe went out of their way to get former employees paid.

100% disagree. Just because one company goes out of the way for PR good will does not many many other companies will. Many companies do not care about you once you are a departed employee.

For example, see how easy it is to get your bi weekly paycheck copies. Most will not reply at all.

Re: Ask HN: Former employees' RSUs at risk after startup's IPO

#53

Post by JumpCrisscross »

danielmarkbruce wrote: post #24
JumpCrisscross wrote: post #21

Earlier quoted context omitted.

> It's not orthogonal. The agreement usually covers shares owned by employees and former employees It covers them as equity holders, or people with the right to equity. I’ve negotiated lock-up agreements. Nobody is thinking about RSU holders. Hence how OP winds up in this mess. OP’s problem stems from a draconian form of RSU. It doesn’t automatically vest on a liquidity event. It has the company collecting taxes. And…

Yes, it covers them. Hence it's not orthogonal. The fact that there are two agreements doesn't make them orthogonal. Many situations are covered by more than one contract (or law or regulation).

You’re being intentionally obtuse. The source of the problem isn’t the lock-up agreement, which was negotiated independently of the RSUs. And the lock-up agreement is easily (and commonly) circumvented—the problem is intractable because it’s unrelated to the lock-up.

(And pedantically, a 185-day lock-up is not common.)

Re: Ask HN: Former employees' RSUs at risk after startup's IPO

#54

Post by scarface_74 »

andrewf wrote: post #13

On point 3 specifically: I work for a FAANG, and the employees need to nominate the percentage the company should sell-to-cover, they don't figure it out for you. If you're no longer employed by the company I don't know _how_ they'd figure it out. If RSUs are still W-2 income for a former employee (I don't know this?) it's the extra tax you'd pay on that much income - for me I estimate using the tax bracket it'll pul…

At Amazon you just choose sell to cover and they figure it out.

Re: Ask HN: Former employees' RSUs at risk after startup's IPO

#55

Post by JumpCrisscross »

breakds wrote: post #37
danielmarkbruce wrote: post #25

Earlier quoted context omitted.

yeah i was going to suggest the same... there are companies that do this, and honestly anyone with a little cash will lend you the money assuming the stock isn't a totally ridiculous thing. How are the RSUs managed? Are they in a brokerage account? You may well be able to borrow from the broker.

The shares are not in our brokerage account yet. According to the company, they need to confirm the tax payment to the company before the shares are transferred to the personal brokerage account.

> shares are not in our brokerage account yet

You don’t own shares. You own a right to future shares. Borrow against that. (If you want to roll your own loan, sell a deliverable forward. Again, not legal advice!)

Re: Ask HN: Former employees' RSUs at risk after startup's IPO

#56

Post by deanmoriarty »

This is sad and surprising.

I’ve been through so many shenanigans during my previous life as a naive startup employee: paid huge amounts of AMT (which took years to recoup via AMT credits), was not offered 83b election, had to write huge checks to exercise ISO, had to pay taxes when exercising NSO, etc., but I had never heard of a company threatening to forfeit the RSU if tax is not wired to them, it’s simply wild, especially when the liquidity is so close.

If I was in your shoes and the amount was substantial, I’d consult a lawyer. I hired one to help me facilitate a secondary sale transaction contract and it cost me $4k, money well spent. Tons of them in the Bay Area.

I would truly love to know how this will end up for you.

Re: Ask HN: Former employees' RSUs at risk after startup's IPO

#59

Post by JumpCrisscross »

andrewf wrote: post #28
greenspam wrote: post #15

Earlier quoted context omitted.

Right. Instead of the IPO date, or the end of the lockup date, they chose 3/15 as the date to settle the vested RSU. And require us to estimate our tax, based on the fair market value of that future date, with this formula, and pay cash, otherwise the vested RSU will be canceled: Number of vested RSUs * the estimated fair market value of the stock at the settlement date * the appliable highest marginal federal, state…

(Again, not an accountant, I repeat that because I might be wrong and I'd hate anyone to suffer because of that..) There are a couple of different risks here. One is that you pre-pay the company for more than the FMV ends up being; it sucks, especially with interest rates being as high as they are, but you'll get the money back with your tax return filed next year. A different risk is that the price is spiked high at…

> One is that you pre-pay the company for more than the FMV ends up being

There is another duck move in the bag, and that’s paying by cheque. Reverse if unfavourable and settle out of court. Again, massive dick move and—in my opinion—highly unethical. But the regulators and law enforcement are being defunded.

Re: Ask HN: Former employees' RSUs at risk after startup's IPO

#60

Post by zeroq »

A side note.

It was 2006 when I joined Wikia (Fandom).

I was being paid $850 per month, but I also received a piece of paper promising me shares worth of $15,000.

It felt like a good chunk of money. But then I asked myself few questions:

(a) being an Elbonian citizen, how do I enforce this contract?

(b) how much would it it cost me to enforce this contract?

(c) even if I receive these shares and the company would not go IPO what am I it?

Shortly after I quit and left that piece of paper on my desk in the office.

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