Ask HN: My startup has concealed from me that it raised funding. What to do?

The impression I'm getting is that he's going to have to pay taxes on the difference between the strike price of $0.0001/share and the investment price that's now established, to the tune of paying $10,000s of dollars for what are likely worthless shares if/when he stops working for them.

If that is correct, at this point nobody wins. At best from his viewpoint, the company covers his tax bill (or I suppose establishes a new investment price a lot lower through bankruptcy or whatever). Much more likely is that he's going to have to weigh whether suing them and the likely payoff of that will be higher than the tax bill; hmmm, he'd better get a reading on whether he can pierce the corporate veil and go after them directly. Heck, he also needs to see if he can arrange a payment plan with the tax authorities, as others have mentioned; that bill will be due very soon, whatever the final outcome of a lawsuit is.

They're indeed snakes, the shares are indeed almost certainly worthless, but not for the purposes of his 2014 personal tax year :(. ADDED: unless, as others have pointed out, the investment was structured as debt instead of equity.

Yet another example why non-founder options/stock is frequently a negative.

All important points. If he is financially strapped by a five-figure tax liability (presumably that's the income he'd be taxed on, meaning the actual bill is less than half, possibly quite a bit less), there is no way he can afford to take these two folks to court. Even if it's a large tax bill ($10-20-30k+) it's doubtful he can afford a lawsuit on top of that. If the Canadian revenue system is anything like the US's IRS, I sincerely doubt they're going to let him wait to pay that for the year or two (or more) it would take for this to resolve itself in the judicial system.

Even if he can afford everything, it still may not be worth it, even if his goal is just to prove a point/stick it to the dishonest cofounders.

+1 for talking to a Canadian tax lawyer. Also, you may want to ping company counsel about why he or she advised you the FMV was so low given that there was at least one investor. Maybe there's a really simple explanation that we're not aware of. The first investor may have invested using convertible debt rather than actual shares or options. Some founders (falsely, I think, but it's debatable) believe debt has no impact on the FMV of the company.

Don't create any problems, specifically don't:

1. Stop going in to work (at least without a good reason such as health). 2. Confront anyone, at all. 3. Degrade your work (in as much as you can help yourself). 4. Talk about it, even here or elsewhere.

All of these things will likely be brought up if this goes to court. Don't damage your image.

Recognize you cannot trust your employer, so no point in confronting them or asking anything. Try to be all smiles and don't give anything away. You don't want them to start digging for information on their side.

Get a lawyer. I hope you can afford that. It will be hard to find one but persist.

Write down all details you can remember right away with dates and times, including overtime hours, special projects, extras you performed, reviews of your work and performance, comments that may matter, copies of your email, etc.

Good luck sir... Apologies this happened.

You are now faced with a number of decisions, namely: financial, emotional, moral and a business decision in general.

On the financial front, the decision is easy to remedy, if the other founders are willing. Ideal scenario is (a) Your 3% equity is fully-vested (b) 3% equity cannot be further diluted (c) you get retrospective compensation and (d) You get another good raise.

Morally, you have been wronged. It is tempting to take the high ground and take full offensive on principal alone (fight) or cut all ties (flight). But a moral victory won't last long when you need to find a new job, when you realise your stake is gone or if the company gets a big exit 2 years down.

Emotionally, you have every right to be upset and you'll need to find a way to deal with it. My own two cents is, "don't be a wuss" or anywhere near that frame of mind--you'll come out stronger and smarter, whatever happens.

In terms of making a value-judgement business decision, your best outcome is that things get reconciled and you put this all behind yourselves, they apologise, you build a rapport with them and have discussions on how this can be avoided in the future. You may need to highlight to them all that you have given to this company and you are willing to reconcile if they are. You should probably not go in to work for 3-4 days (I am presuming they know you are upset and why) and wait for them to contact you during this time. If they contact you and are showing any signed of reconciliation your conversation should be about (a) how they can make things right financially (all 4 points above) and (b) how to avoid this in the future so that the company can have a strong moral standing. During this time, you should prepare for the worst and talk to a lawyer with the correct expertise.