Former employer sale, Share Options, my rights?

[C70R]

Tossed up between putting this one in Employment, but settled here instead.

I worked at a start-up a few years ago, and it was customary to have bonuses etc. paid in Share Options. These Options currently have zero value, and cannot be exercised until the company goes through a 'sale event'.

I left the company on ok terms after a difference of opinion on strategy (not uncommon in the startup world), and retained my Options. A bit of fag-packet maths against a likely share price (based on similar companies) suggests they will be worth a decent sum when they are able to be exercised.

Met up with an old colleague who knows the company's leadership, and he mentioned that there was a buyer on the horizon and it was getting pretty serious, with a likely buyout before EOY. I just don't know what happens next.

What are the company's legal obligations to me as a holder of Share Options in the event of a buyout? Do they have to notify me?

How would I pay tax on the proceeds of selling these Options (which is my intention)?

Has anyone been through a similar process?

Thanks in advance.

[alscar]

When I was still working I too received options as bonus’s so slightly different scenario and these were also date triggered.
Then I paid for the option when exercised through payroll or a cheque back to the company (!) and when / if I sold any tax owed on the profit I dealt with via SA.
In your case and assuming they are contractually yours I’m guessing that the company will indeed contact you ( they will have a list of all option holders so might be a good idea to make contact with HR now just to ensure they have your correct contact details ) and then I imagine you will send them any money due for the option.
When you sell any tax due I guess will be dealt with as part of your dealings with HMRC etc.
But I’m no expert.

[C70R]

alscar said:

When I was still working I too received options as bonus’s so slightly different scenario and these were also date triggered.
Then I paid for the option when exercised through payroll or a cheque back to the company (!) and when / if I sold any tax owed on the profit I dealt with via SA.
In your case and assuming they are contractually yours I’m guessing that the company will indeed contact you ( they will have a list of all option holders so might be a good idea to make contact with HR now just to ensure they have your correct contact details ) and then I imagine you will send them any money due for the option.
When you sell any tax due I guess will be dealt with as part of your dealings with HMRC etc.
But I’m no expert.

Thank you. I have dealt with date-triggered share options as part of my current employer's contract, but that was obviously fairly trivial because I have ready access to HR people. I haven't actually sold any of those options yet, as the company is still in a high-growth phase, so I'm not clear on how tax works there.

I was hesitant to email HR at my previous employer for a couple of reasons. Firstly it might seem like suspicious timing (not that they would/could do anything different, I guess), and secondly I'd just assumed they would have no obligation to me as a former employee.

[alscar]

Options are in your name so think that’s where HR obligations as such should be concentrated.
The fact you no longer work there should be academic.
I wouldn’t worry about any suspicions - but if you are just say you are advising lots of people etc and thought you would include them.
Tax wise - until you have a profit ( and presumably above any allowances ) you don’t owe anything.

[BobToc]

alscar said:

The fact you no longer work there should be academic.
I wouldn’t worry about any suspicions

Unless they were subject to a vesting schedule.

[C70R]

BobToc said:

alscar said:

The fact you no longer work there should be academic.
I wouldn’t worry about any suspicions

Unless they were subject to a vesting schedule.

They weren't.

[C70R]

alscar said:

Tax wise - until you have a profit ( and presumably above any allowances ) you don’t owe anything.

Presumably any "profit" is derived as soon as I sell them, then I just pay tax on that profit as if it were part of my income?

[alscar]

Yes I believe so - as no longer working there you won’t qualify for any entrepreneurial tax allowances ( afaik and assuming you didn’t have a material percentage ownership once vested etc ).

[alscar]

Hopefully an accountant will be along shortly to either confirm or tell us I am talking rubbish.

[PugwasHDJ80]

Depends on the Option type

are you sure it wasn't an EMI scheme- which would be most common?

It is unusual for ex employees to retain options in a startup once they have left- are you CERTAIN that you have retained entitlement? Certainly when we advise startups on funding and staff option pools, the options only vest if staff member has stayed or is a "good leaver".

Happy to give you some tips- but i might need to see the paperwork to tell you anything useful!

[fat80b]

PugwasHDJ80 said:

It is unusual for ex employees to retain options in a startup once they have left

Is it? - I went through this and the employees had their shareholding listed on the docs on companies house - many of them were ex-employees?

Having looked to work at a boat load of startups in the past, many seem to be structured this way with shareholdings documented on companies house etc - it's one of the things I always check before bothering with an interview....?

[C70R]

PugwasHDJ80 said:

It is unusual for ex employees to retain options in a startup once they have left- are you CERTAIN that you have retained entitlement?

I am 100% certain, to the point that the exact number are written into my settlement contract.

The standard agreement had options vesting over time from their issue, and any good leaver (i.e. standard resignation) would have retained everything they were entitled to at the point of resignation.

Edited by C70R on Wednesday 12th October 15:47

[C70R]

PugwasHDJ80 said:

are you sure it wasn't an EMI scheme- which would be most common?

They were indeed part of an EMI scheme. Thank you for jogging my memory.

[C70R]

fat80b said:

PugwasHDJ80 said:

It is unusual for ex employees to retain options in a startup once they have left

Is it? - I went through this and the employees had their shareholding listed on the docs on companies house - many of them were ex-employees?

Having looked to work at a boat load of startups in the past, many seem to be structured this way with shareholdings documented on companies house etc - it's one of the things I always check before bothering with an interview....?

These are merely Share Options, so I am not listed on Companies House.

[PugwasHDJ80]

fat80b said:

PugwasHDJ80 said:

It is unusual for ex employees to retain options in a startup once they have left

Is it? - I went through this and the employees had their shareholding listed on the docs on companies house - many of them were ex-employees?

Having looked to work at a boat load of startups in the past, many seem to be structured this way with shareholdings documented on companies house etc - it's one of the things I always check before bothering with an interview....?

I inferred from the original post that he wasn't a founding starter- ie an employee who took sweat equity instead of salary.

If you join after a startup has "started-up" much of the equity pool will already have been allotted so typically further dilution is through an EMI scheme or similar. I could absolutely be wrong in different markets- certainly some industries seem to have different expected emoluments than others.

[PugwasHDJ80]

C70R said:

fat80b said:

PugwasHDJ80 said:

It is unusual for ex employees to retain options in a startup once they have left

Is it? - I went through this and the employees had their shareholding listed on the docs on companies house - many of them were ex-employees?

Having looked to work at a boat load of startups in the past, many seem to be structured this way with shareholdings documented on companies house etc - it's one of the things I always check before bothering with an interview....?

These are merely Share Options, so I am not listed on Companies House.

So its worth noting that an EMI scheme isn't a Share Option- it might sound like pedantry but the nuances are crucial both from the practical perspective and the tax treatment.

C70R, whilst i'm happy to write out a long answer here, it would be WAY quicker to chat through on the phone if you prefer? PM me if that's easier!

[C70R]

PugwasHDJ80 said:

fat80b said:

PugwasHDJ80 said:

It is unusual for ex employees to retain options in a startup once they have left

Is it? - I went through this and the employees had their shareholding listed on the docs on companies house - many of them were ex-employees?

Having looked to work at a boat load of startups in the past, many seem to be structured this way with shareholdings documented on companies house etc - it's one of the things I always check before bothering with an interview....?

I inferred from the original post that he wasn't a founding starter- ie an employee who took sweat equity instead of salary.

If you join after a startup has "started-up" much of the equity pool will already have been allotted so typically further dilution is through an EMI scheme or similar. I could absolutely be wrong in different markets- certainly some industries seem to have different expected emoluments than others.

Curiously, I do also have experience of retaining and selling proper equity in another startup. It was much more straightforward than this.

[BobToc]

I think in practice this instance is going to turn out to be very straightforward, but the lack of information is annoying.

[C70R]

BobToc said:

I think in practice this instance is going to turn out to be very straightforward, but the lack of information is annoying.

I had assumed that, and wasn't particularly concerned. But, as you say, it's not a topic that's well-covered.

[C70R]

PugwasHDJ80 said:

C70R said:

fat80b said:

PugwasHDJ80 said:

It is unusual for ex employees to retain options in a startup once they have left

Is it? - I went through this and the employees had their shareholding listed on the docs on companies house - many of them were ex-employees?

Having looked to work at a boat load of startups in the past, many seem to be structured this way with shareholdings documented on companies house etc - it's one of the things I always check before bothering with an interview....?

These are merely Share Options, so I am not listed on Companies House.

So its worth noting that an EMI scheme isn't a Share Option- it might sound like pedantry but the nuances are crucial both from the practical perspective and the tax treatment.

C70R, whilst i'm happy to write out a long answer here, it would be WAY quicker to chat through on the phone if you prefer? PM me if that's easier!

Thank you. That's a very kind offer.