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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

#141

Post by blindriver »

breakds wrote: post #91
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…

I talked to someone who is a Chief Accounting Officer. First off, to be perfectly blunt, you were foolish to wait until 30 days before this occurred before asking questions.

The company has an obligation to withhold tax to the IRS. It sounds like the company doesn't want to spend its own cash to pay this withholding tax so they are forcing ex-employees to fork over the cash, with the threat of forfeiting their shares.

This doesn't sound legal unless it was spelled out in your employee equity grant. The fact that you would forfeit your shares seems wrong. I would read over whatever equity grants you signed.

However the benefit is that you get 100% of your shares and you don't lose any shares to taxes. You could talk to a lawyer but unless you don't have the money to pay the withholding tax (22% of the opening price of the shares on the settlement date unless you own more than $1 million, which then becomes 37%), I would just pay as little as possible and get the shares.

If it is legal, it's the company being an asshole and being really shitty to their ex-employees. Please name and shame them so that we can avoid them.

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

#143

Post by x0x0 »

emilsedgh wrote: post #94
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.

call the intake people at Grellas Shah and ask for David Siegel, or for a different partner as appropriate.

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

#144

Post by x0x0 »

emilsedgh wrote: post #116
rwmj wrote: post #113

Earlier quoted context omitted.

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

How about US/California?

David at Grellas Shah would be my recommendation. They're a boutique-y startup-oriented law firm that understands these issues.

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

#145

Post by dalyons »

JumpCrisscross wrote: post #53
danielmarkbruce wrote: post #24

Earlier quoted context omitted.

Yes, it covers them. Hence it's not orthogonal. The fact that there are two agreements doesn't make them orthogonal. Many situations are covered by more than one contract (or law or regulation).

You’re being intentionally obtuse. The source of the problem isn’t the lock-up agreement, which was negotiated independently of the RSUs. And the lock-up agreement is easily (and commonly) circumvented—the problem is intractable because it’s unrelated to the lock-up. (And pedantically, a 185-day lock-up is not common.)

Just curious, how is a lock-up commonly circumvented? Might be relevant information for me, I would appreciate any tips

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

#147

Post by fragmede »

indymike wrote: post #115
fragmede wrote: post #83

Earlier quoted context omitted.

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.

Huh? Who's trusting some other party to pay your taxes? I'm saying keep the RSUs, pay for the taxes out of pocket, so you hold onto RSUs that may appreciate faster than, say, holding onto SP500, likes say picking up FB at 30.

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

#148

Post by kayo_20211030 »

abduhl wrote: post #134
kayo_20211030 wrote: post #119

Earlier quoted context omitted.

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.

I'm no expert - not even a talented amateur. But, RSU's for employees are equity, and RSU's for non-employees are expense. I'm assuming, because books must balance, that there's a similar split in tax (and responsibility for tax).

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

#149

Post by fragmede »

JumpCrisscross wrote: post #127
fragmede wrote: post #87

Earlier quoted context omitted.

Ehhh 180 days is 6 months is fairly standard.

Which is why 185 isn’t. (Lock-ups have also gone into and out of vogue. And again, this is a problem with the company’s treatment of withholding. The lock-up agreement could go away and OP would retain their problem.)

The extra 2.7% isn't material to OP's problem. As you note, OP's real problem is the withholding.

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

#150

Post by konfusinomicon »

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…

that AMT struggle is real, painful, and needs legislative changes when it comes to ISO exercise in private companies. especially when you have to set up a payment plan for the taxes owed, which are ever increasing due to fines and penalties, while the owed credit is ever losing value due to inflation and the lost opportunity to put that money to work. and on the state tax side you should plan on not moving and losing a job in that state as if you dont have any taxable income there you are shit out of luck on getting your money back. my only advice is that if you are offered a large chunk of options without an 83b and have faith in the company, exercise as soon as possible before the value goes up.
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