Stock options question
Discussion
I work for a pre-IPO company, and have a limited number of stock options as part of my contract. My uneducated understanding was that I would sit on these options until floated, and then I would be able to cash in the options and benefit from the post-IPO price minus the options price.
A contemporary in the business has told me I can actually purchase the actual stocks now at the options price, and therefore own the shares myself. Is this accurate?
The price is in dollars, so I suspect this is a US based scheme.
A contemporary in the business has told me I can actually purchase the actual stocks now at the options price, and therefore own the shares myself. Is this accurate?
The price is in dollars, so I suspect this is a US based scheme.
Newc said:
If your company is pre-IPO, what stock is your colleague referring to that you can buy ?
GOod point.Also, why would you want to do that?
You will pay the same price for them hence the only difference is that you have to fork actual money out for them now as opposed to just earning the difference at the point you want to cash out. I think.
Definitely. THey work well for both parties.
It just depends entirely on the value behind them and what you are giving up by staying.
They are fine when the IPO goes ahead relatively timely, but a close friend of mine has been tied to a company he hates for many years now with a value he simply could not walk away from.
It just depends entirely on the value behind them and what you are giving up by staying.
They are fine when the IPO goes ahead relatively timely, but a close friend of mine has been tied to a company he hates for many years now with a value he simply could not walk away from.
Well, as above, it's all in the small print so you need to read the doc. The two key things to look for are the vesting schedule (you think it's 20% per year, but check that it's the same for all years if you have been granted additional options each year), and retention rights on leaving. Some companies let you keep vested options, some don't. Some let you keep unvested ones, though that's unusual. But there's no fixed rule. If you can keep them on leaving is there also an extra approval clause where it's not automatic and needs co. agreement - usually used to allow the company to sack people for cause and claw the options back.
Other things to look for are lock-ups (how long do you have to keep the stock after an exercise, it's usually six months), and the exact terminology - are these actual options or restricted stock units or tracking units or something else ?
And ask your colleague precisely what he means by 'use them to buy stock now'.
Other things to look for are lock-ups (how long do you have to keep the stock after an exercise, it's usually six months), and the exact terminology - are these actual options or restricted stock units or tracking units or something else ?
And ask your colleague precisely what he means by 'use them to buy stock now'.
You also need to know what the valuation of the company is that you are buying the shares ? Typically private companies trade at a significant discount to the valuations associated with listed companies. If you and the other staff are minority shareholders and the owner of the business still has a controlling stake that makes a difference. A lot of companies have different classes of shares too.
Here's an example...I own some shares in a private company which has three classes of shares
Class A - Start up investors
Class B - Guy that started the company
Class C - Staff
The class C shares are non voting unlike the other classes and because staff generally want to sell shares they effectively trade at a discount to the Class A and B.
If there are different classes of shares you need to look at "drag and tag" clauses. In an IPO it's not 100% given that all shareholders receive the same price.
There are plenty of ways for you to get screwed as a shareholder in a private business if shareholders agreements haven't been drafted properly.
Here's an example...I own some shares in a private company which has three classes of shares
Class A - Start up investors
Class B - Guy that started the company
Class C - Staff
The class C shares are non voting unlike the other classes and because staff generally want to sell shares they effectively trade at a discount to the Class A and B.
If there are different classes of shares you need to look at "drag and tag" clauses. In an IPO it's not 100% given that all shareholders receive the same price.
There are plenty of ways for you to get screwed as a shareholder in a private business if shareholders agreements haven't been drafted properly.
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