You should talk to a lawyer and/or accountant but this doesn't sound right at all. First, why are you buying your options? In he US you typically don't acquire them till you leave the company. I also don't see how you could rack up that sort of tax bill on a company and shares that cheap. You should also consider asking the "company" to help you out with the tax bill. This all just doesn't sound right.
Ask HN: My startup has concealed from me that it raised funding. What to do?
51–60 of 117 posts
Re: Ask HN: My startup has concealed from me that it raised funding. What to do?
#52Earlier quoted context omitted.
I can't imagine writing this off. He's been seriously wronged, to the tune of quite a lot of money. The raise alone (promised in writing, never delivered) is probably substantial, considering it's been about a year since it should have happened. The tax issue seems less clear, but I have a hard time imagining you wouldn't be liable if you hid important investment details from a shareholder and therefore caused him a…
It doesn't really pay to win $50k in a lawsuit paying $30k on legal fees, plus the years it takes for the legal system to run its course. A lawsuit is a lot of stress. There's no guarantee he'd win. The corporation can be bankrupt when/if he wins. You can't keep working there after you sue them or your lawyer sends them a threat letter. There's no point continuing to work with dishonest people. Given their dishonesty…
You may be right, but he may also have an easy case. The point is, talk to a lawyer before deciding what to do. It could be that there is no case and pursuing this would be completely pointless. It could be that this is a complete slam-dunk for both damages and legal fees and it's completely worth doing. Or it could be somewhere in between, but he needs to know where he stands before deciding.
Re: Ask HN: My startup has concealed from me that it raised funding. What to do?
#53There is so much misinformation in this thread.
I would consider that perhaps your facts are wrong. Perhaps the first investor did a convertible note. Perhaps he did a loan.
First thing I would do is calmly talk to the CEO directly and tell him what the CFO told you and why it makes you concerned.
There's no reason to be disgusted (yet) from reading your pastebin.
And even if it's true, then you simply need to ask the company to cover your tax burden and then move forward with getting back to work.
This is not that big of a deal.
Re: Ask HN: My startup has concealed from me that it raised funding. What to do?
#54Is there any use in contacting a lawyer?
YES. YES. For the legal and accounting implications, you need to see people who understand them. I can't help you there. I know enough to know that you absolutely need a lawyer on your side (and don't fall into the trap of trusting the company's lawyer).
Career-wise, you need to move on. First, working with a pair of brothers or a couple or a father/son duo is generally a bad idea. Others' pre-existing relationships to or within power put you at a career disadvantage and you should avoid them when possible. Call that a lesson learned. Second, they obviously didn't see you as important enough to the company to know what's going on. Don't expect that to change. They've shown their hand; now show your back as you walk out the door.
That said, don't burn bridges and read Smushman's reply. Don't put anything in writing that you wouldn't want in the New York Times. (I know that that's cliche advice, but here it applies. Be extremely cautious, is what I'm saying.) There's a good chance that if you go into court, these guys will attack your character and reputation and the quality of your work, even if they've been cordial to this point. (I've seen startup breakups. They're ugly.) You can't prevent that but don't give them any ammo. Just find another job, give 2 weeks' notice, and move along.
Have someone check your references and report back. You'll be shocked at how willing "jilted" startup founders are to tarnish the reputations of exes who "quit on" them. Risk-averse corporations don't give bad references but cowboy founders who've never believed rules apply to them will say all kinds of shit. If you get a bad reference, you need to reach me offline (michael.o.church at gmail) and I'll tell you how to fix that up.
Don't stick around because of vesting unless you stand to gain millions. By all means, get what is rightfully yours based on the time that you have worked, but don't put your career at risk. These founders don't see you as the same class of human (most tech founders don't, because they have the investor-level connections and you don't) and that's not going to change.
Good luck. Above all, don't get angry and try not to hate your soon-to-be ex-bosses. It will just cloud your judgment. This is extremely common and a lesson that a lot of people have to learn the hard way. Given the circumstances, you'll probably get some money out of it but it probably won't be anything close to what you want or think you deserve.
Re: Ask HN: My startup has concealed from me that it raised funding. What to do?
#55Well despite the fact that this is very stressful, I would start with the maxim that one should employ Hanlon's Razor[0] and not ascribe to malice what can adequately be explained by stupidity. It's quite possible, nee probable, that they are just disorganized and genuinely thought you already knew, or that it didn't matter, or otherwise were clueless or inexperienced enough to not really understand what had happened…
OP should consider this a good lesson (and one that I learned going through an acquisition); unless you're a founder, you cannot control "the deal".
Unless you're in the room when the chips are (re)divvied up, you have to trust someone else to advocate for you. And after tolling away for a few years, trading your life for the promise of a better future through being acquired, ultimately you end up in a shitty position.
Don't be diluted in thinking the founders will "take care of everyone".
Your only leverage in the end is to walk away (and try and blow up the deal or company, if you're that critical). And if you do walk and they don't stop you and counter offer, you probably weren't going to get anything anyway.
Re: Ask HN: My startup has concealed from me that it raised funding. What to do?
#56Earlier quoted context omitted.
> in the US, you only get taxed when you sell the shares That's not quite correct with regards to US tax law at least. You can get taxed on the spread between the price you pay and the "fair market value" of the shares received. It's quite possible to get nailed with an insane tax bill in situations like this. You can end up in a situation where a company raises money at high valuations, and that spread is high, gene…
> leading to a horror story of being taxed on a percentage of the millions of dollars you supposedly got but never realized a dime from. If the shares a complete loss and liquidated that way, you also have a capital loss for the millions of dollars which can be applied against income for tax purposes; this may end up somewhat less than offsetting the tax bill depending on your other income because of tax rates; you d…
I'm not sure your statement about "capital loss" is correct. I know people who have gotten burned by this. They still ended up writing a big tax check at the end of the year despite having worthless shares. The tax code is definitely not fair.
EDIT: other people have pointed out that capital loss is capped, which makes sense. So while it may be true that you can claim capital loss, my understanding has been that it never compensates for the tax you're already liable for when you exercised.
Re: Ask HN: My startup has concealed from me that it raised funding. What to do?
#57[deleted]
Re: Ask HN: My startup has concealed from me that it raised funding. What to do?
#58[deleted]
Re: Ask HN: My startup has concealed from me that it raised funding. What to do?
#59Earlier quoted context omitted.
> in the US, you only get taxed when you sell the shares That's not quite correct with regards to US tax law at least. You can get taxed on the spread between the price you pay and the "fair market value" of the shares received. It's quite possible to get nailed with an insane tax bill in situations like this. You can end up in a situation where a company raises money at high valuations, and that spread is high, gene…
> leading to a horror story of being taxed on a percentage of the millions of dollars you supposedly got but never realized a dime from. If the shares a complete loss and liquidated that way, you also have a capital loss for the millions of dollars which can be applied against income for tax purposes; this may end up somewhat less than offsetting the tax bill depending on your other income because of tax rates; you d…
> If the shares a complete loss and liquidated that way, you also have a capital loss for the millions of dollars which can be applied against income for tax purposes; this may end up somewhat less than offsetting the tax bill depending on your other income because of tax rates; you do end up paying (for employer-provided options) the payroll tax for the spread in any case, but then, the main part of that is limited by the annual cap on SS taxes, so for most of anything in the millions, you'll only be paying, on the payroll tax side, the Medicare portion.
This depends on the tax jurisdiction; as the OP indicated, in Canada capital losses cannot be deducted against ordinary income, which the difference of (FMV - strike) would be assessed as. (I believe in the US, up to $3,000 of losses can be deducted against ordinary income)
Re: Ask HN: My startup has concealed from me that it raised funding. What to do?
#60Earlier quoted context omitted.
It doesn't really pay to win $50k in a lawsuit paying $30k on legal fees, plus the years it takes for the legal system to run its course. A lawsuit is a lot of stress. There's no guarantee he'd win. The corporation can be bankrupt when/if he wins. You can't keep working there after you sue them or your lawyer sends them a threat letter. There's no point continuing to work with dishonest people. Given their dishonesty…
You may be right, but he may also have an easy case. The point is, talk to a lawyer before deciding what to do. It could be that there is no case and pursuing this would be completely pointless. It could be that this is a complete slam-dunk for both damages and legal fees and it's completely worth doing. Or it could be somewhere in between, but he needs to know where he stands before deciding.
He needs an accountant more than a lawyer.
You can usually negotiate a payment plan. Plus, he gets a credit when he sells or writes off the shares,