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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

#91

Post by breakds »

blindriver wrote: post #69

Are you in the US? Because what you're describing doesn't sound like how it would work in the US. When the company IPOs, your vested shares would immediately vest into actual shares. At that point, you would be taxed and awarded a W-2. This is non-negotiable, and this is something that the company would be forced to handle. The idea that you have a lingering tax payment due before lockout period expires doesn't make…

Yes, we are in the U.S., but our situation seems quite different from the standard RSU process you described.

We did not receive a W-2, and the company has not reported the RSUs as taxable income yet.

Even though our RSUs fully vested at IPO, they are not yet settled as shares—the company has set the settlement date to March 15, 2025.

The company is requiring us to prepay withholding taxes in cash before they release the shares. If we don’t pay by the deadline, the RSUs will be forfeited entirely.

This is why we are trying to better understand how this aligns with U.S. tax laws and whether this is standard practice.

We agree that this doesn’t sound like how RSUs typically work in the U.S., which is why we are seeking advice. If you have any thoughts on how this situation might fit within U.S. tax regulations, we’d really appreciate your perspective!

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

#93

Post by plasticchris »

ryandrake wrote: post #26
JumpCrisscross wrote: post #17

Earlier quoted context omitted.

> Never heard of having to wire taxes as a condition of receiving stock owed to you Extremely common with ISOs and RSUs. There are consequences for issuers if their options are improperly exercised or RSUs improperly vested.

Low sample count for me, so I guess I'm lucky I've never seen this. My first thought would be the same as OP's: This smells funny. Generally whenever you have to pay your employer to get paid, something foul is afoot.

The only time I’ve ever heard of it was as an option for people who wanted to keep all the shares and avoid the sell to cover.

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

#94

Post by emilsedgh »

vessenes wrote: post #74

I read down pretty far and did not see this basic advice: you need a lawyer. Hire a very good one: they are cheaper than poor lawyers by an order of magnitude. That lawyer will review your agreements, the state laws and the communications with the company and tell you where you’re at. You could all go in together for the lawyer btw if you have the same contract. I bet that lawyer will tell you (if this is in Californ…

How would you find good lawyers that have experience dealing with this stuff?

I had to sign stuff like this and the lawyers I was sent to seemed they didn't really have much relevant experience and I'm deeply uncomfortable with their assessments given how confused they looked.

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

#95

Post by kelnos »

vessenes wrote: post #74

I read down pretty far and did not see this basic advice: you need a lawyer. Hire a very good one: they are cheaper than poor lawyers by an order of magnitude. That lawyer will review your agreements, the state laws and the communications with the company and tell you where you’re at. You could all go in together for the lawyer btw if you have the same contract. I bet that lawyer will tell you (if this is in Californ…

> I bet that lawyer will tell you (if this is in California) that you just need to send a letter saying “cool guys, send the shares, I’ll worry about the taxes. I don’t consent to forfeiture.”

Not sure about this. A random thing[0] I found says:

"RSUs are considered supplemental income, and as such, the income you receive from them is subject to withholding taxes. The IRS requires a federal withholding rate of 22% for supplemental income up to $1 million, and 37% for income exceeding that amount."

(It also links to the relevant IRS publication, but I am not interested in poring over it right now.)

So I believe the employer is required to do that withholding.

It does seem pretty sketchy that current employees have access to a sell-to-cover option, but former employees do not. This feels like the company trying to screw over former employees, since they don't care if a former employee gets mad at them. Over the years I've heard of quite a few companies (and founders) who have this bizarre, messed-up belief that employees who leave the company pre-IPO shouldn't be entitled even to their vested equity.

I glanced through an old RSU plan doc from a former employer, and it does talk about withholding, including a sell-to-cover option, but the wording sounds (to me, anyway; IANAL) like they aren't required to offer that option, only that they may do so. Obviously I have no idea what OP's legal docs say (or if I'm even interpreting this doc I do have correctly); a lawyer would need to go over them.

[0] https://www.harnesswealth.com/articles/what-you-need-to-know...

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

#96

Post by kristjansson »

Get a lawyer. Get an accountant. Ensure they have experience in the relevant jurisdictions (yours, and your former company’s). Realize there is a risk to be borne here, by someone, and you should expect to either bear it, or pay someone else to.

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

#97

Post by kelnos »

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.

I don't think it's cynical at all. Unfortunately I can't provide concrete examples, but I recall many instances over the past 15 years or so reading stuff here on HN where founders/companies expressed a belief that they should be able to claw back even vested equity from employees who have left the company pre-IPO.

It's super super gross, but it's unfortunately a thing. Hopefully that's not what's going on here with OP, but I wouldn't be surprised if it is. If the company is offering a sell-to-cover option to existing employees, they are certainly capable of doing so for former employees as well.

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

#98

Post by kelnos »

flomo wrote: post #90
rootsudo wrote: post #52

Earlier quoted context omitted.

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.

Wow, check stubs used to be the basic social currency around renting and etc. Are you saying people can't get these anymore? Or maybe they know too much and don't care?

I assume GP is talking about getting paystubs from a former employer, not from a current one. I've never had any trouble getting paystubs from my current employer; they were always available through the HR website portal (ADP, Workday, etc.).

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

#99

Post by kelnos »

danielmarkbruce wrote: post #29
greenspam wrote: post #27

Earlier quoted context omitted.

True that the company needs to follow regulations. But they could do "net exercise", or "sell to cover". Instead they choose "pay cash or forfeit" path.

Even that has downsides - they are effectively guaranteeing a large sale right at the end of the lock-up. It's hard to know if investors pushed back on that or from where the pressure came. This stuff is more complex than it seems, companies are rarely just being d*cks.

That's pretty normal, though, and they're offering sell-to-cover as an option to their current employees, so that sale at the end of lock-up is going to happen regardless.

I'm not convinced these events represent a significant enough number of shares to move the price, though. And regardless, many current and former employees will use this opportunity to dump more shares than just to cover withholding. I wouldn't be surprised if the number of shares sold normally at that time will dwarf the number sold to cover tax withholding.

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

#100

Post by kelnos »

JumpCrisscross wrote: post #9

Most RSUs have a time and liquidity vesting. The latter triggers on IPO. If your company didn’t follow that convention, they went out of their way to screw you [1]. (RSUs are generally a worse deal than IPOs. They’re a great deal for companies, which is why Andreessen et al push them.) > current employees have access to a sell-to-cover option, while former employees are required to prepay in cash This is common. Cash…

That's not a cashless sale. The company sells enough of your vested shares to cover taxes. The withholding the company sends to the IRS comes from some retail investor on the public stock exchange who buys those shares, not from the company's bank account. There's no loan involved and no risk the company has to take on.
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