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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

#111

Post by jjav »

pavlov wrote: post #105

A question perhaps to help anybody else who finds themselves in this situation... If one doesn't have the cash to prepay the taxes, where do you find a short-term lender for this? Let's say your RSUs are worth $1M and you need to pay $220k in taxes in March, but you won't be able to sell the shares until a few months later. In theory the $1M in public company stock seems like a fine collateral. But in practice, a rec…

> If banks or rich friends are not an option, where do you get the $220k? Second mortgage on your home?

Paying taxes on phantom income is extremely risky. As you described, if there is a gap between the tax event and the liquidity timeframe, the value might disappear and you end up paying taxes on money you never had and never will have. A lot of people have lost everything on this.

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

#112

Post by Jakob »

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…

Most countries have mandatory tax withholding by the employer, but not all (e.g. Singapore, Indonesia). In that case you would pay the taxes yourself.

What I haven’t heard yet, is not being allowed to sell on the settlement date. That puts you in a serious risk:

Worst case, the stocks fall to zero, but you paid taxes from your private money. This is net-negative.

To avoid that risk, either the employer needs to withhold the taxes or needs to allow you to sell the tax amount on the first day.

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

#113

Post by rwmj »

0xFF0123 wrote: post #108
rwmj wrote: post #106

Earlier quoted context omitted.

You can't just use your random family lawyer. You need one who specialises in corporate law, VCs, RSUs and so on. Who that will be depends entirely on your location. I know a company that does this in London, but that's no use at all to this poster.

For someone based in London, are you able to share?

I've used Bird & Bird in the past. Expensive though!

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

#114

Post by [deleted] »

jjav wrote: post #111
pavlov wrote: post #105

A question perhaps to help anybody else who finds themselves in this situation... If one doesn't have the cash to prepay the taxes, where do you find a short-term lender for this? Let's say your RSUs are worth $1M and you need to pay $220k in taxes in March, but you won't be able to sell the shares until a few months later. In theory the $1M in public company stock seems like a fine collateral. But in practice, a rec…

> If banks or rich friends are not an option, where do you get the $220k? Second mortgage on your home? Paying taxes on phantom income is extremely risky. As you described, if there is a gap between the tax event and the liquidity timeframe, the value might disappear and you end up paying taxes on money you never had and never will have. A lot of people have lost everything on this.

[deleted]

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

#115

Post by indymike »

fragmede wrote: post #83
greenspam wrote: post #79

Earlier quoted context omitted.

The best case is to not pay the taxes upfront. Say the company wants me to pay 50% tax in cash and then give me 100% of my vested RSU; I want 50% of my vested RSU without needing to pay taxes. Yes, we are contacting lawyers. Thanks for your attention!

That's not necessarily the case. You might not want to put up money to cover taxes, but that's not advantageous in all situations, so echoing everyone else's advice here: talk in depth with a professional who's time you pay for.

I'd rather pay the taxes directly than trust someone else to do it, especially when that someone is making it as difficult to get the money from your investment. Those RSU's were earned, and the whole point is you get to share in the liquidity event.

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

#117

Post by ryaniscool »

kelnos wrote: post #95
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% fo…

I think this illustrates perfectly why they should talk to a lawyer. I read through the link you posted. They don't mention anything about sec. 83(b) elections. It's a common strategy to avoid paying taxes until the RSU's are liquidated.

I know about it because my current employer structured the RSU's this way. Every ESOP and RSU plan I've ever participated in has been slightly different. Your link focuses on a very specific set of circumstances.

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

#118

Post by csomar »

kelnos wrote: post #95
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% fo…

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

Sure but the withholding is the responsibility of the employer. In this case, shouldn't the employer cover it and send the shares - xx%?

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

#119

Post by kayo_20211030 »

csomar wrote: post #118
kelnos wrote: post #95

Earlier quoted context omitted.

> 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% fo…

> So I believe the employer is required to do that withholding. Sure but the withholding is the responsibility of the employer. In this case, shouldn't the employer cover it and send the shares - xx%?

The group are not employees. They're ex-employees. There is no employer relationship in this case. The responsibility for withholding is somewhere else.

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

#120

Post by lutorm »

I'm not understanding the situation. When I had RSUs as an employee, those grants were voided at separation. I only got to keep the RSUs that had vested before separation (which were then just common stock and that I had paid taxes on at vesting.)

Are you saying your former employer let you keep your unvested RSUs which subsequently vested at the IPO? (I've never heard of anyone getting to keep their unvested grants after separation.) Or were you still an employee during the IPO and left the company between then and now?

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