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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

#131

Post by caseysoftware »

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…

Your "talk to a lawyer asap" advice was perfect. Stop there.

In the US, I've worked with the team at https://www.optimalcounsel.com/ before. They're great and founder-focused so generally get it and are reasonable on pricing.

Before you talk to an attorney, make sure you have your agreements together. That is likley your initial employment agreement, any grant docs, your separation docs, and the current agreement they want you to sign.

And yes, don't wait. If you need to take action, you may need to have time to ship docs, send wire transfers, etc.

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

#132

Post by darioush »

Yeahhhhh get lawyers, most IPOs will tank in the short run leaving you footing the tax bill for money you never had (speaking from experience).

At least you get capital loss carryovers for a decade, but it's so shameful that companies dump on their own employees. What a dark world.

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

#133

Post by ryaniscool »

PopAlongKid wrote: post #130
ryaniscool wrote: post #117

Earlier quoted context omitted.

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…

>They don't mention anything about sec. 83(b) elections Perhaps because it is inapplicable. 83(b) election can only be used for property that has been transferred but not vested. (Having a lock-up period does not mean the property is unvested).

This is inaccurate. I'm not going to litigate it with you though. Google it. It's a common strategy for a company to perform an 83(b) election on your behalf when they grant you RSU's. This way, you don't have to pay taxes as the RSU's vest.

Also, typically, your shares do not just vest all at once. There is a cliff (typically a year) followed by monthly vesting. That's why the OP's situation doesn't make a lot of sense. They are former employees, therefore a liquidity event would not have triggered any type of vesting.

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

#134

Post by abduhl »

kayo_20211030 wrote: post #119
csomar wrote: post #118

Earlier quoted context omitted.

> 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.

I would be wary of assuming that is true for purposes of RSUs. Whether these folks and the company consider them current "employees" is not the employee-employer test for tax withholding purposes.

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

#135

Post by vessenes »

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…

It’s a basic legal concept that you can’t just seize pay or any asset, but especially one worked for. So, you may be right that the employer must withhold — again no idea. That said, unless you’ve specifically agreed to seizure in the past, it would be very surprising if the company did not owe you the value of those RSUs, and perhaps the ongoing value of the stock depending on if they’d failed to deliver timely on request.

Who owes the IRS? The Company, on behalf of the person.

Who owes the company for paying? The person.

Each of these are separate obligations. The company is trying to tie them together for convenience, and presumably to wash out some RSU liabilities at the same time.

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

#136

Post by amluto »

caseysoftware wrote: post #131
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…

Your "talk to a lawyer asap" advice was perfect. Stop there. In the US, I've worked with the team at https://www.optimalcounsel.com/ before. They're great and founder-focused so generally get it and are reasonable on pricing. Before you talk to an attorney, make sure you have your agreements together. That is likley your initial employment agreement, any grant docs, your separation docs, and the current agreement the…

And also time to retain an attorney. A reputable firm of any size is likely to need to check to see whether they are conflicted and to write a retainer agreement. They won’t charge for these services, but it’s not instantaneous.

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

#137

Post by ypzhang2 »

ryaniscool wrote: post #133
PopAlongKid wrote: post #130

Earlier quoted context omitted.

>They don't mention anything about sec. 83(b) elections Perhaps because it is inapplicable. 83(b) election can only be used for property that has been transferred but not vested. (Having a lock-up period does not mean the property is unvested).

This is inaccurate. I'm not going to litigate it with you though. Google it. It's a common strategy for a company to perform an 83(b) election on your behalf when they grant you RSU's. This way, you don't have to pay taxes as the RSU's vest. Also, typically, your shares do not just vest all at once. There is a cliff (typically a year) followed by monthly vesting. That's why the OP's situation doesn't make a lot of se…

They most likely have dual trigger RSUs, so the second trigger is typically a liquidity event.

You are talking about single trigger RSUs with only time based vesting.

Also a 83b means you pay taxes at the time of issuance rather than vesting. If these folks received their shares post founding, that means that there might be substantial tax burden for them when they received these shares if a 83b was filed. This is why most folks do not opt for a 83b after a substantial FMV has been established for their shares. This is also why double trigger RSUs are popular, so you can actually execute sell-to-cover.

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

#138

Post by ryaniscool »

ypzhang2 wrote: post #137
ryaniscool wrote: post #133

Earlier quoted context omitted.

This is inaccurate. I'm not going to litigate it with you though. Google it. It's a common strategy for a company to perform an 83(b) election on your behalf when they grant you RSU's. This way, you don't have to pay taxes as the RSU's vest. Also, typically, your shares do not just vest all at once. There is a cliff (typically a year) followed by monthly vesting. That's why the OP's situation doesn't make a lot of se…

They most likely have dual trigger RSUs, so the second trigger is typically a liquidity event. You are talking about single trigger RSUs with only time based vesting. Also a 83b means you pay taxes at the time of issuance rather than vesting. If these folks received their shares post founding, that means that there might be substantial tax burden for them when they received these shares if a 83b was filed. This is wh…

I can only speak from my experience but I've worked for two companies where the RSU's are structured as a pseudo-option.

Essentially, their price is set at FMV at the time of issuance. Since your net is zero at the time of issuance, you pay no taxes until there is a liquidity event and you can pay to cover.

Since this happened to me at two unrelated companies, I imagine it's a very common structure because it follows common sense and it works out great for everyone.

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

#139

Post by amluto »

deanmoriarty wrote: post #56

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, e…

> was not offered 83b election

The 83b election mechanism is a mess, and plenty of startups don’t explain it well to their employees, but I wasn’t aware that an employer had any particular say in it. Generally, the employee makes the election by mailing the appropriate documents to the IRS.

(I’m not a lawyer. Do your own research.)

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

#140

Post by romanhn »

amluto wrote: post #139
deanmoriarty wrote: post #56

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, e…

> was not offered 83b election The 83b election mechanism is a mess, and plenty of startups don’t explain it well to their employees, but I wasn’t aware that an employer had any particular say in it. Generally, the employee makes the election by mailing the appropriate documents to the IRS. (I’m not a lawyer. Do your own research.)

As far as I know, a company still has to allow early exercise in order for you to be able to purchase unvested options.
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