[HN Gopher] Ask HN: Former Employees' RSUs at Risk After Startup...
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Ask HN: Former Employees' RSUs at Risk After Startup's IPO
Hi HN, A group of us, former employees of a startup that recently
went public on Nasdaq, are seeking advice on how to navigate an
unexpected RSU settlement process. We would appreciate insights
from those with experience in equity compensation, tax law, or
corporate governance. * The Situation We worked at a startup for
several years and were granted Restricted Stock Units (RSUs). These
fully vested upon the company's IPO in 2024, but the company has
set the settlement date as March 15, 2025 (185 days post-IPO,
However, we are not allowed to sell the shares until April, if we
were to receive them). This means we will only receive the shares
then, but there are some aspects of the process that we are unsure
about. * Key Questions We Have 1 Prepaying Taxes in Cash: We have
been asked to wire a tax prepayment directly to the company's bank
account before receiving our shares. Many of us were expecting a
sell-to-cover approach (where some shares are withheld for taxes),
which is common. We are wondering if this approach--requiring a
direct tax prepayment--is standard practice. 2 Forfeiture Clause:
The company has stated that if we do not prepay the taxes by March
15, 2025, the RSUs will be permanently forfeited. We understand
that companies have different ways of handling RSU settlements, but
we are curious whether this type of forfeiture clause is common.
Since RSUs are considered compensation, we would like to understand
if there are alternative ways companies typically handle tax
withholding. 3 Unclear Tax Calculation Guidance: We have been
asked to calculate the withholding tax ourselves based on an
estimated stock price. However, we have not been provided official
guidance on how to do this, which makes us concerned about
potential errors. If we underpay, we need to send more money within
one business day. If we overpay, we have to apply for a tax refund
later. We're wondering how companies typically help employees
navigate tax prepayment for RSUs. 4 Difference Between Current and
Former Employees: We understand that current employees have access
to a sell-to-cover option, while former employees are required to
prepay in cash. We are curious if this type of distinction between
current and former employees is typical for post-IPO RSU
settlements. * Seeking Advice from the Community We are not
looking to place blame--we understand that every company has its
own way of structuring RSU settlements. However, since we were
surprised by these requirements, we are hoping to learn from others
who have experienced similar situations. Some of the key things we
would love advice on: - Have you encountered an RSU settlement
process like this before? - Are there alternative methods (e.g.,
net exercise, structured buyback) that could be proposed? - How do
companies usually structure tax withholding for RSUs, particularly
for former employees? - Are there legal or negotiation strategies
that might be useful in discussing this with the company? - We are
hoping to engage in a conversation with the company to explore
potential solutions that work for everyone. We truly appreciate any
insights from this community. Thanks in advance!
Author : jameskuang
Score : 28 points
Date : 2025-02-12 16:13 UTC (6 hours ago)
| bignate01 wrote:
| Same question here
| greenspam wrote:
| Hope to see some folks with similar experience, like former
| employees from Uber, to share their stories.
| greenspam wrote:
| @jameskuang correction: March 15, 2025 is 140 days from the IPO
| day. This is before the lockup periods ends and is used to
| determine the fair market value of the stock that taxes are
| calculated. If the stock drops dramatically between March 15th
| and the end of the lockup period, ex-employees could lose money
| (more cash tax is paid than the value the stock can be sold).
| linotype wrote:
| This seems like a great way to get people that don't have cash on
| hand to pre-pay the taxes to forfeit their RSUs.
| hansonkd wrote:
| > We are curious if this type of distinction between current and
| former employees is typical for post-IPO RSU settlements.
|
| I'm watching this thread, but just as a reminder that it benefits
| the company to be as vague and complicated as possible for ex-
| employees trying to exercise their equity rights. You and your
| equity are effectively dead weight to the company now and it's in
| their best interest to get you to forfeit as much as possible.
| The best time to cash in your equity is always when you are still
| an employee.
| Ancalagon wrote:
| Yet another reason working for most startups is a scam
| carlosdp wrote:
| Went through the Twilio IPO, I can give feedback based on my
| experience. IANAL and all that.
|
| 1. I've never heard of that from a tech company IPO. Twilio did
| sell-to-cover fwiw.
|
| 2. Does your RSU contract/letter say something about that? I'd
| maybe check with a lawyer and see if they can even do that. I
| would have imagined that in this scenario, the company gives you
| the RSUs and leaves you to figure out paying the IRS yourself.
|
| 3. That sounds absurd, I never had to do that. Tech companies
| that reach IPO typically have an HR department that handles all
| this for you, but I mean yours clearly doesn't I guess. I don't
| know what, if any, obligation employers actually have legally in
| this regard. Again, I'd check with a lawyer.
|
| 4. Hmm, I was a current employee during my IPO experience, so
| don't know how former employees were handled. I'm guessing though
| that they were also given sell-to-cover option. I'm pretty sure
| the stock broker the company used (I think it was ETrade) just
| handled all that for the company, including showing us how much
| was sold to cover as things vested, and locking current employees
| during quiet periods.
|
| Good luck, hope that helps a bit in terms of at least validating
| your sanity that this probably isn't normal.
| JumpCrisscross wrote:
| Most RSUs have a time _and_ liquidity vesting. The latter
| triggers on IPO. If your company didn't follow that convention,
| they went out of their way to screw you [1]. (RSUs are generally
| a worse deal than IPOs. They're a great deal for companies, which
| is why Andreessen _et al_ push them.)
|
| [1] Find the IPO pitch materials and see if the bankers pitch
| anti-dilution post IPO.
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