Sunday 11 March 2018

Opções de ações da github


Opções de estoque.
Nesta página.
Níveis de concessão de opção de estoque.
Se você fizer uma promoção, devemos emitir uma nova concessão de opção de estoque para o número de opções que corresponde à diferença entre seu nível antigo e seu novo nível. Este também é o caso se você tiver atualmente mais opções do que seu nível antigo é elegível (por exemplo, isso pode ocorrer se você se juntou no início da história da empresa). Se não contatarmos as operações das pessoas.
Sobre a sua propriedade no GitLab.
Na GitLab, acreditamos firmemente na participação dos funcionários em nossa empresa. Estamos no negócio para criar valor para nossos acionistas e queremos que nossos funcionários se beneficiem desse sucesso compartilhado.
Neste documento (apenas acessível aos membros da equipe GitLab e aos candidatos), você pode encontrar mais detalhes sobre o número de ações em circulação e as avaliações mais recentes.
Este guia destina-se a ajudá-lo a entender o pedaço de GitLab que você vai possuir! Seu objetivo é ser mais direto do que o plano de incentivo GitLab 2015 Equity (o "Plano de Patrimônio 2015") e seu contrato de opção de compra de ações que é aconselhável que você leia, que são ambos os detalhes legais completos. Note-se, no entanto, que, embora esperemos que este guia seja útil para a compreensão das opções de ações e / ou ações emitidas para você no âmbito do Plano de Patrimônio 2015, os termos e condições vigentes estão contidos no Plano de Patrimônio 2015 e no contrato de opção de compra de ações relacionado. . Você deve consultar um advogado de emprego e / ou um conselheiro fiscal se tiver alguma dúvida sobre como navegar suas opções de compra de ações e antes de tomar decisões importantes.
Opções de estoque.
Na GitLab, oferecemos subsídios de equivalência patrimonial sob a forma de opções de ações de incentivo (ISOs) e opções de ações não qualificadas (NSOs). A diferença nestes dois tipos de subvenções são geralmente as seguintes: os ISO são emitidos para funcionários dos EUA e possuem uma forma especial de tratamento tributário reconhecida pelo Internal Revenue Service (IRS) dos EUA. Os NSOs são concedidos a contratados e funcionários não-americanos. É chamada de opção porque você tem a opção de comprar o estoque da GitLab mais tarde, sujeito a condições de aquisição, ao preço de exercício fornecido no momento da concessão. Somente para fins de exemplo, se você receber opções de ações com um preço de exercício de US $ 1 por ação de ações ordinárias hoje, e se a GitLab crescer mais tarde, então suas ações ordinárias valem US $ 20 por ação, você ainda poderá comprar o comum estoque sobre o exercício da sua opção por US $ 1 por ação.
A razão pela qual damos opções de compra de ações em vez de estoque direto é que você não precisa gastar dinheiro para comprar o estoque na data da concessão e pode decidir comprar o estoque mais tarde, à medida que suas opções são adquiridas. Além disso, não oferecemos subsídios de estoque diretos, pois isso pode sujeitá-lo a passivos fiscais imediatos. Por exemplo, se lhe concedermos US $ 10.000 no estoque de GitLab hoje, você teria que pagar impostos sobre o valor do estoque (potencialmente milhares de dólares) para este ano fiscal. Se oferecemos opções de US $ 10.000 em estoque, você geralmente não tem que pagar impostos até exercê-los (mais para exercitar mais tarde). Mais uma vez, trata-se de um resumo geral do tratamento tributário de suas opções e você deve consultar um consultor de impostos antes de tomar qualquer ação no futuro, o que poderia desencadear impostos.
Vesting significa que você deve permanecer empregado por, ou seja, um fornecedor de serviços para o GitLab por um certo período de tempo antes de poder possuir totalmente o estoque comprado sob sua opção de compra de ações. Em vez de lhe dar o direito de comprar e possuir todas as ações ordinárias sob sua opção de estoque no primeiro dia, você possui o estoque sob sua opção de estoque em incrementos ao longo do tempo. Este processo é chamado de aquisição e diferentes empresas oferecem horários de aquisição de diferentes comprimentos. Na GitLab, nossa prática padrão é emitir opções com um horário de aquisição de quatro anos para que você possua um quarto de suas ações após 12 meses, metade do seu estoque após dois anos, e tudo depois de 4 anos. Vesting acontece mensalmente (então você ganha 1/48 de suas opções a cada mês), mas muitos horários de aquisição incluem um penhasco. Um penhasco é um período no início do período de aquisição que o seu patrimônio não é coletivo mensalmente, mas, em vez disso, ganha no final do período do penhasco. Na maioria das empresas, incluindo o GitLab, esse período de falésias é geralmente de um ano. Isso significa que, se você deixar o seu emprego voluntariamente ou involuntariamente antes de você ter trabalhado por um ano inteiro, nenhuma das suas opções será adquirida. No final desse ano, você ganhará o valor total do ano (12 meses) de capital de uma só vez. Isso ajuda a manter a propriedade do estoque da GitLab para pessoas que trabalharam na empresa por um período significativo de tempo.
Esta seção trata da diluição que acontece com todas as empresas ao longo do tempo. Em geral, as empresas emitem ações de tempos em tempos no futuro. Por exemplo, se a empresa XYZ precisa arrecadar dinheiro de investidores externos, talvez seja necessário criar novas ações para vender a esses investidores. O efeito das emissões adicionais de ações pela empresa XYZ é que, enquanto você possuirá o mesmo número de ações que você fez antes dessa emissão, haverá mais ações no total e, como resultado, você terá uma porcentagem menor da empresa - isso é chamado de diluição.
A diluição não significa necessariamente um valor reduzido. Por exemplo, quando uma empresa gera dinheiro, o valor das ações permanecerá o mesmo porque a nova avaliação da empresa será igual ao valor antigo da empresa + o novo capital levantado. Por exemplo, se a empresa XYZ vale US $ 100 milhões e eleva $ 25 milhões, a empresa XYZ vale agora US $ 125 milhões. Se você possuía 5% de US $ 100 milhões antes, agora possui 4% de US $ 125 milhões (20% da empresa foi vendida ou, de outra forma, diluída em 20%). A participação de 5% foi de US $ 5 milhões antes da arrecadação de fundos e a participação de 4% vale agora US $ 5 milhões.
Janela de exercícios após a conclusão.
Por favor, note que até o período de bloqueio do lançamento do IPO ter expirado (ou nós somos comprados), o estoque da empresa não é líquido. Se o seu emprego acabar por qualquer motivo, você tem uma janela de 90 dias para exercer suas opções. Durante esta janela, você deve encontrar o preço de exercício e, em alguns casos, o imposto sobre o ganho de valor de suas opções de compra de ações, o que pode ser considerável. Se o estoque da empresa não é líquido, esse dinheiro pode ser difícil. A janela de 90 dias é um padrão da indústria, mas há bons argumentos contra isso. No GitLab, as opções de estoque destinam-se a comprometer os membros da nossa equipe para que possamos obter um IPO bem-sucedido. Queremos motivar e recompensar nossas pessoas por atingir esse objetivo. Portanto, consideraremos extensões de janela de exercícios somente caso a caso, a nosso critério. Um exemplo de uma situação que consideramos é um membro da equipe valorizado que cessa devido a circunstâncias pessoais. Na maioria dos casos, não haverá extensão e você terá que pagar por ações e os impostos por conta própria ou perder as opções, mesmo quando você estiver totalmente investido. E, claro, um IPO em 2020 é a nossa ambição pública, mas nem o tempo, ou se isso acontece é garantido.
Administração.
Usamos o eShares para administrar nosso programa de opções de ações. Você receberá um aviso de concessão ao seu endereço GitLab. Ao clicar nisso, você poderá configurar uma conta de usuário no eShares. Você pode encontrar todos os termos e condições do programa de ações, bem como sua concessão específica no sistema eShares. Como uma sugestão útil, sugerimos que você adicione um segundo endereço pessoal ao seu perfil. Isso pode ser adicionado clicando em Perfil e Segurança no canto inferior esquerdo da tela inicial depois de efetuar login no eShares.
Exercitando suas opções.
"Exercitar suas opções" significa comprar o estoque garantido por suas opções. Você paga o preço de exercício que foi definido quando as opções foram concedidas pela primeira vez e você recebe certificados de ações de volta. Para dar aos funcionários uma oportunidade de se beneficiar de quaisquer incentivos fiscais existentes que possam estar disponíveis (inclusive sob os EUA e as leis fiscais holandesas), nós fizemos o estoque imediatamente exercível. Isso significa que você pode exercer seu direito de comprar as ações não cobradas sob sua opção para iniciar seu período de retenção. No entanto, a Companhia mantém direitos de recompra das ações não vencidas se seu emprego ou outros serviços acabarem por qualquer motivo. Um exercício antecipado do estoque não-realizado pode ter implicações fiscais importantes e você deve consultar o seu consultor fiscal antes de tomar essa decisão.
Além disso, enquanto a empresa tem o direito de recomprar as ações não vencidas após a rescisão dos serviços, a empresa não está obrigada a fazê-lo. Consequentemente, você poderia perder algum ou todo o investimento que você fez. Como somos uma empresa jovem, existem muitos riscos, portanto, esteja atento e informado sobre os riscos. Por favor, leia este tópico de quora sobre a maioria das startups falhando e esta história de pessoas pagando mais impostos no estoque do que eles voltaram.
Como exercitar suas opções de estoque.
As opções são aprovadas pelo Conselho de Administração nas reuniões trimestralmente planejadas do conselho. Depois que sua concessão foi aprovada pelo Conselho, você receberá um aviso de concessão por meio de eShares contendo informações relevantes para a concessão, incluindo o número de ações, preço de exercício, período de aquisição e outros termos fundamentais.
Existem dois métodos para exercer seus compartilhamentos:
Eletrônico (apenas para residentes nos Estados Unidos) Faça login na sua conta eShares Siga as instruções para habilitar os pagamentos ACH do seu banco Depois que a ACH foi habilitada, selecione concessões de opções de exercícios e siga as instruções Manual (Residentes não ACH e não-americanos) Faça login na sua conta eShares Clique em " Exibir "(lado direito da tela) Clique em" Anexos e Notas "Clique em" Formulário de Acordo de Exercício "Complete o formulário, assine e devolva como PDF ao CFO Envie o pagamento em dólares americanos por transferência bancária. Você receberá informações de transferência eletrônica.
Nota para os residentes dos EUA: seja qual for o método que você escolher, certifique-se de baixar o formulário de eleição 83-b fornecido pela eShares e arquivar com o IRS dentro de 30 dias do exercício. Envie uma cópia do formulário de eleição para o CFO.
Você provavelmente irá querer incluir a seguinte carta ao enviar a eleição 83-b para o IRS.
Departamento do Tesouro.
«Endereço fornecido com as instruções eShares 83-b»
A quem possa interessar:
Encontre duas cópias da eleição de 83-b em conexão com a minha compra de ações da ação comum da GitLab Inc.. Por favor, devolva uma cópia carimbada como recebida em minha atenção no envelope selado auto endereçado.
Expiração da opção.
Se você deixar a empresa, geralmente terá 90 dias para exercer sua opção por ações que sejam adquiridas (a partir do último dia do serviço). Você não pode comprar ações não vencidas depois que seu serviço tiver terminado. Se você deixar de exercer sua opção dentro dos 90 dias após a rescisão do serviço, sua opção será encerrada e você não poderá comprar nenhuma ação sob essa opção. Além disso, se não expirou de outra forma até a rescisão do seu emprego, as opções de compra de ações expiram 10 anos após a sua emissão.
Preços de exercícios e avaliações de 409 A.
Geralmente, o preço de exercício das opções outorgadas no âmbito do Plano de Patrimônio 2015 será pelo valor justo de mercado dessas ações ordinárias na data da concessão. Em suma, "o valor do mercado de férias" é o preço que uma pessoa razoável poderia esperar para pagar as ações ordinárias, mas porque a GitLab não é "pública" (listada em uma grande bolsa de valores), o Conselho é responsável por determinar o valor justo de mercado. A fim de assistir o conselho, a empresa mantém assessores externos para realizar algo chamado de "avaliação de 409A". Em geral, quanto menor for a avaliação das ações, melhor para os funcionários, pois há mais oportunidades de lucro. Além disso, um menor preço de exercício reduz o dinheiro necessário para exercer as ações e estabelece um período de retenção que pode ter vantagens fiscais em alguns países. Nós descrevemos aqueles aqui, mas como sempre verifique com seu consultor financeiro ou fiscal antes de tomar qualquer ação.
A lei tributária é complexa e você deve consultar um advogado fiscal ou outro consultor fiscal que esteja familiarizado com as opções de ações iniciais antes de tomar qualquer decisão.
Para os funcionários dos EUA com opções de estoque de incentivo (ISOs), você não é tributado quando você exerce suas opções. O imposto será devido ao ganho ou lucro que você fizer quando você vende as ações (diferença entre o preço de exercício e o preço de venda). Dependendo do seu período de detenção, o imposto pode ser tratado como renda ordinária ou ganho de capital. Observe, no entanto, que qualquer ganho após o exercício de um ISO (diferença entre o preço de exercício e o valor justo de mercado na data do exercício), mesmo que você não venda as ações, pode ser contado como uma "preferência de imposto" em relação à alternativa Limite mínimo de imposto. Você deve entrar em contato com um consultor de impostos para ver se isso se aplicaria a você.
Além dos benefícios de um período de detenção mais longo, o IRS tem um benefício adicional para os titulares de ações de pequenas empresas qualificadas (QSBS para breve). Atualmente, a GitLab atende aos critérios de tratamento QSBS no entanto, novamente a Companhia não está em condições de oferecer conselhos fiscais ou jurídicos, portanto, verifique com seus próprios consultores fiscais e financeiros. Encontramos este artigo útil ao descrever o programa QSBS em maior detalhe.
Geralmente, para opções de ações não qualificadas (NSOs), você é tributado em qualquer ganho após o exercício de um NSO (diferença entre o preço de exercício e o valor justo de mercado na data do exercício). As ONS são tratadas muito menos favoravelmente sob a legislação tributária, porque elas podem ser administradas a pessoas que não trabalham no GitLab. Isso complica a legislação tributária e está além do escopo atual deste documento.
Para os nossos funcionários com base na Holanda, a autoridade tributária neerlandesa tem um conceito semelhante, na medida em que apenas a diferença entre o preço de exercício e o valor justo de mercado é considerada tributável. Então, se você se exercita com antecedência, não há diferença entre os dois e, portanto, nenhum ganho tributável. No que diz respeito aos relatórios fiscais, você declara a diferença entre o valor justo de mercado no exercício e o preço de exercício. Então, se não há diferença entre os dois, nada precisa ser relatado. Depois de ter exercido opções, então você precisará falar com seu assessor fiscal sobre como denunciá-los para fins de imposto de riqueza holandês. Novamente, a Companhia não está em condições de oferecer conselhos fiscais ou jurídicos em torno de exercícios antecipados ou relatórios tributários, portanto, verifique com seus próprios consultores fiscais e financeiros.
Qualquer um é sempre bem-vindo para perguntar ao nosso CFO qualquer dúvida sobre suas opções, a angariação de fundos da GitLab ou qualquer outra coisa relacionada à equidade no GitLab. No entanto, todos também devem consultar um advogado antes de tomar decisões financeiras importantes, especialmente no que diz respeito ao seu patrimônio, porque existem requisitos legais e fiscais complexos que podem ser aplicados.
Referências.
O membro da nossa equipe, Drew Blessing, escreveu sobre o que aprendeu sobre as opções de compra de ações depois de começar a pesquisá-las porque as recebeu quando se juntou a nós. Seu artigo é muito apreciado, mas a GitLab Inc. não endossa, qualquer conselho é dele.

Opções de estoque Github
Puxe pedidos 0.
Participe do GitHub hoje.
O GitHub é o lar de mais de 20 milhões de desenvolvedores que trabalham juntos para hospedar e rever o código, gerenciar projetos e criar software juntos.
Clone com HTTPS.
Use o Git ou o check-out com o SVN usando o URL da web.
Eu não sou um contador. As pessoas que contribuíram para este documento provavelmente não são contabilistas. Este documento não é um conselho fiscal. Este documento não leva em consideração suas circunstâncias individuais. Se você ler este documento, você concorda que você não me responsabilizará por quaisquer danos sofridos por quaisquer ações que você tenha tomado como resultado da leitura deste documento.
Este documento é fornecido na base "TAL COMO ESTÁ", SEM GARANTIAS OU CONDIÇÕES DE QUALQUER TIPO, expressas ou implícitas, incluindo, sem limitação, quaisquer garantias ou condições de TÍTULO, NÃO VIOLAÇÃO, COMERCIALIZAÇÃO ou APTIDÃO PARA UM FIM ESPECÍFICO. Você é o único responsável por determinar a adequação de usar ou redistribuir este documento e assumir quaisquer riscos associados à leitura ou a tomar qualquer conselho.
Quando recebi opções de ações de uma empresa, achei incrivelmente difícil entender quais eram minhas obrigações fiscais. O site da ATO descreve as regras fiscais para ações e opções de ações em termos contábeis incrivelmente genéricos. Em particular, houve muito pouca sobreposição usada entre os termos escritos no meu documento de esquema de compartilhamento de empregado fornecido pela minha empresa e os termos no site da ATO. Este documento é uma tentativa de eu expressar minha interpretação em inglês simples das leis tributárias australianas à medida que se aplicam aos esquemas compartilhados dos empregados oferecidos por startups tecnológicos típicos. Destina-se a ser um trabalho colaborativo, hospedado no GitHub, e as contribuições podem ser feitas, criando problemas ou enviando pedidos de tração.
Também é uma tentativa para eu validar minha interpretação das leis tributárias contra o entendimento comum de quem lê este documento. Nessa linha, há erros muito prováveis ​​(possivelmente um grande) que eu fiz, então, se você acha que eu estou errado em qualquer coisa, levante um problema ou envie uma solicitação de puxar.
Em primeiro lugar, este documento destina-se a mim próprio (James Roper) para esclarecer a minha compreensão sobre as leis tributárias australianas no que diz respeito aos esquemas de participação dos empregados de que sou parte.
Em segundo lugar, este documento destina-se a pessoas que estão em situação semelhante para mim. Ou seja, eles são um residente australiano que deve pagar impostos na Austrália, eles trabalham para uma inicialização, e eles receberam ações ou opções de ações de sua empresa. Destina-se a familiarizá-los com algumas das regras, terminologia e complexidade da legislação tributária australiana no que diz respeito às opções de compra de ações. Não é conselho fiscal. Veja o seu contador.
Em terceiro lugar, este documento destina-se ao escritório de impostos. A própria existência deste documento é uma indicação de que a explicação dos sites da ATO sobre a legislação tributária australiana para os esquemas de compartilhamento está faltando quando se trata de aplicá-lo para compartilhar esquemas que comumente são dadas aos funcionários das startups de tecnologia. A redação usada neste documento pode ser útil como um começo para melhorar o conteúdo no site da ATO, de tal forma que os participantes dos esquemas de compartilhamento de empregados de inicialização tecnológica possam se relacionar facilmente.
Claro, todo esquema de compartilhamento de empregado é diferente. No entanto, os esquemas de compartilhamento de empregados oferecidos pelas start-ups de tecnologia geralmente são muito similares a uma perspectiva fiscal. Isto é particularmente verdadeiro se o seu esquema de compartilhamento de empregado for para uma inicialização baseada no Vale do Silício, nos esquemas de compartilhamento de empregados do Silicon Valley são tão comuns e tão baratos configurar que, geralmente, há apenas um modelo que a empresa preenche e isso é tudo o que precisa. Para as empresas australianas, as coisas são (aparentemente) muito mais difíceis e muito mais caras, mas, no entanto, a intenção é a mesma.
Portanto, um esquema típico de compartilhamento de funcionários pode parecer assim:
Você recebe uma série de opções a um preço de exercício. Você pode ter que pagar um preço inicial muito pequeno (muito menor que o preço de exercício) para comprar as opções, ou pode ter sido dado gratuitamente a você. As opções são adquiridas ao longo de um período de tempo, geralmente 4 anos. 25% de colete após o primeiro ano, e, de forma incremental, todos os meses ou todos os trimestres, uma vez que uma pequena quantia ganha até terem todos os direitos adquiridos. Você pode exercer qualquer parcela de ações adquirida em qualquer momento. Exercitar significa comprar ações ao preço de exercício. Se você deixar a empresa antes dos 4 anos, você perderá as ações não vencidas. A parcela adquirida que você pode exercer dentro de um determinado período de tempo, por exemplo, 90 dias, caso contrário, você também os perde. Em algum momento do futuro, talvez depois de 7 anos, as opções expiram e você as perderá se você não as tiver exercido naquela data.
Existem alguns outros aspectos de um esquema típico de compartilhamento de empregado oferecido em startups tecnológicos que podem não ser tão interessantes para você, mas são importantes em certas áreas da lei tributária, se algum desses pontos não for verdade, então parte disso O documento pode não se aplicar a você:
As opções / ações são ações ordinárias. Isso levanta a questão, o que é uma parcela extraordinária? A participação não comum comum em startups de tecnologia é compartilhamento preferencial. As partes preferenciais significam quando a empresa é vendida, os detentores de ações preferenciais recebem o primeiro pedaço da torta, geralmente ao valor do que investiram. É uma apólice de seguro, se a empresa for ruim, eles pelo menos recebem o que eles colocam de volta antes que alguém ganhe dinheiro. Esses tipos de ações geralmente são fornecidos aos capitalistas de risco quando investem na inicialização. Eles nunca são entregues aos funcionários. Existem alguns outros tipos de ações, mas em um esquema típico de compartilhamento de empregado em startups de tecnologia, as ações são comuns. Suas opções / ações não são para mais de 5% da empresa ou mais de 5% dos direitos de voto. A menos que você seja um dos fundadores da sua empresa, é provável que suas opções apenas lhe proporcionem uma fração de por cento da empresa. O regime de participação é concedido a pelo menos 75% dos empregados residentes na Austrália da empresa. Este será o caso em uma inicialização tecnológica típica.
Uma nota final, as leis fiscais australianas mudaram em 2009. Este documento está falando apenas de ações recebidas após a alteração das leis.
No que diz respeito à tributação das opções de compra de ações, um dos termos mais importantes que você encontrará é o desconto. O desconto é a diferença entre o preço de exercício e o valor da participação. É efetivamente o desconto que você recebe quando você compra as ações, que você não teria obtido de outra forma, se você não possuísse a opção de compra de ações que lhe permite comprá-la a esse preço de exercício inferior.
Outro termo importante é o valor justo de mercado. Como a empresa que você está trabalhando é uma inicialização, o valor da ação não é tão simples como apenas olhar para o preço no mercado de ações, já que sua empresa ainda não está listada no mercado de ações. As ações, no entanto, possuem um valor e, durante esta etapa de não estar listada, esse valor é o valor justo de mercado.
Em um esquema de compartilhamento típico, você pode perguntar à sua empresa qual o valor justo de mercado da ação em qualquer momento (ou obter uma tabela de todos os preços do compartilhamento ao longo do tempo), e eles serão entregues a você.
Na Austrália, há uma regra estranha sobre um desconto de ganhos de capital. Esta regra é incrivelmente relevante para os esquemas de compartilhamento de empregados, então devemos explicá-lo aqui.
Quando você recebe renda de um empregador, essa renda conta para o seu rendimento tributável total, e então você paga imposto sobre isso, como normal. Quando você obtém lucros com a venda de um ativo (por exemplo, uma propriedade de investimento ou ações), isso é chamado de ganho de capital, e esse ganho conta para o seu rendimento tributável total e, em seguida, você paga imposto sobre isso, como normal. Exceto, se você possuir o ativo por mais de um ano (você ouvirá freqüentemente contadores dizer "um ano e um dia"), então você pode dividir o ganho de capital em dois antes de adicioná-lo ao seu rendimento tributável total. Assim, você acaba pagando pelo menos metade do imposto sobre o ganho de capital. Isso é conhecido como um desconto de impostos sobre ganhos de capital.
Isso tem conseqüências importantes para as opções de ações, porque é o dinheiro que você faz com as receitas de ações ordinárias, ou é um ganho de capital? Se este último, você pode pagar taxas significativamente menores. A resposta a esta pergunta é onde existe uma grande parte da complexidade das opções de compra de ações.
Em primeiro lugar, é importante saber que, se o seu esquema de participação for para uma empresa estrangeira, as regras não são diferentes do que para se forem para uma empresa australiana. Se você é um residente australiano para fins fiscais, você tem todas as mesmas obrigações tributárias, independentemente do país em que a empresa que detém ações ou opções de ações está. Você pode se perguntar como a ATO saberia que você tem ações ou opções de ações em uma empresa estrangeira, e a resposta é que eles não irão, a menos que você lhes diga. Dito isto, se sua empresa for bem e, de repente, um milhão de dólares desembarquece em sua conta bancária australiana, você pode apostar que você terá alguns auditores fiscais batendo na sua porta perguntando de onde esse dinheiro veio.
Vamos começar com a posição padrão. Você deve pagar o imposto quando você concede opções de ações. Como essa opção de estoque representa um desconto em ações, a própria opção de compra de ações tem um valor (igual ao desconto) e, portanto, é a receita que você recebeu. Então, você deve incluir esse rendimento como renda regular (não um ganho de capital) em sua declaração de imposto, na seção de esquemas de participação de empregados.
No entanto, e se você deixar a empresa cedo? Como suas opções não foram adquiridas, você perde as opções, o que significa que você pagou imposto sobre algo que você nunca recebeu. Por esta razão, o escritório de impostos define esta regra de risco real de confisco. Uma vez que suas opções não foram adquiridas e, uma vez que a empresa deixou a empresa perdendo suas opções, existe um risco real de confisco.
As opções de ações para as quais existe um risco real de confisco (há também uma série de outras condições que não entraremos aqui) são contadas como opções diferidas de impostos, o que significa que você deve (isso é algo em que não estou claro , se esta é uma obrigação ou se você tem uma escolha), adie-se declarando-as até certas condições forem verdadeiras. Uma condição é que você deixe de trabalhar. Uma vez que você perde suas opções não adiadas quando você deixa de trabalhar de qualquer maneira, esta condição não é relevante. Outra condição é se as ações não tiverem um risco real de confisco. Isso ocorre quando eles se entregam.
Então, para um esquema típico de compartilhamento de empregado de inicialização tecnológica, você tem que pagar impostos sobre as opções que você recebe quando eles se entregam.
A questão na verdade não é a quantidade de impostos que você paga, mas a quantidade de renda que você declara. Quando suas opções de compra são adquiridas, você toma o valor justo de mercado no momento em que a opção é adquirida, subtrai o preço de exercício e agora você tem o desconto. Se você pagou um preço inicial para comprar a opção, você subtrai isso do desconto, já que isso fazia parte do custo de obtenção do desconto e, portanto, compensa o desconto, caso contrário, faça o desconto tal como está. Em seguida, multiplique isso pela quantidade de opções que foram adquiridas nesse momento. Agora você tem a quantidade de renda que você tem para declarar.
Se houvesse várias vezes as opções adquiridas ao longo do ano (provavelmente havia, uma vez que elas são mensais ou trimestrais), então você precisa fazer esse cálculo por cada mês / trimestre que as opções são adquiridas, usando o valor justo de mercado nesse mês específico ou quarto.
Observe que esse desconto é uma receita regular. Não é elegível para um desconto de imposto sobre ganhos de capital.
Claro, o imposto que você paga quando a opção foi adquirida não é a única vez que você pagará o imposto sobre as ações. Em algum momento do futuro, você pode exercer suas opções, e nesse ponto, ou mais tarde, você pode vender as ações. Quando isso acontecer, você precisará pagar o imposto sobre o ganho com o valor justo de mercado no momento em que adquiriu, este é um ganho de capital. Observe que a base de custo do ganho aqui não é o preço de exercício, mas o valor justo de mercado quando a opção é adquirida. Você já pagou o imposto sobre o ganho do preço de exercício para o valor justo de mercado quando investido, você não precisa pagar o imposto duas vezes por esse ganho.
Se você mantiver a participação por mais de um ano, ou seja, se o período de tempo entre quando você exerceu a opção e depois vendido a participação é superior a um ano (isso é verdade, ou é quando a opção é adquirida). então você será elegível para o desconto de 50% de ganhos de capital e, portanto, você só precisa contar metade do ganho de capital em relação ao seu lucro tributável. Caso contrário, você deve contar o ganho de capital total em direção ao seu lucro tributável.
Você pode ver aqui que o tempo é importante. Você pode economizar muito dinheiro em impostos se você exercer suas opções um ano antes de você pretender vendê-las. Por esse motivo, você pode decidir exercitar suas opções antecipadamente, antes de ter qualquer oportunidade de vendê-las. Você pode decidir exercer suas opções assim que elas se entregam, apenas no caso de haver um evento de liquidez que lhe permita vender suas ações / opções adquiridas, para que você possa reclamar o desconto. Obviamente, porém, agora estamos passando para os riscos padrão de negociação de ações, se você exercer suas ações antecipadamente, e a empresa vai quebrar, então você perderá dinheiro.
Às vezes, a data adquirida, a data de exercício e a data em que você os vende são todos iguais. Este pode ser o caso se a empresa já estiver listada e você vender as ações à medida que elas se virem, ou talvez a empresa tenha sido adquirida e houve uma condição no seu esquema de ações que causou que todas as suas opções fossem adquiridas ao mesmo tempo nesse evento para que você possa vendê-los. Nesse caso, o valor de mercado quando suas opções são adquiridas é o preço pelo qual você os vende, de modo que o lucro total do preço de exercício para o preço de venda (menos o preço de compra inicial das opções se houver) é considerado um rendimento regular - não há ganho de capital e, portanto, nenhum desconto de impostos sobre ganhos de capital.
Se algumas de suas opções tiverem sido adquiridas, e você pagou imposto sobre elas, mas a empresa está quebrada, ou se por algum motivo você decidir não exercer suas opções e perdê-las, então você perdeu essas opções. O desconto que você declarou uma vez como renda, agora você pode declarar como uma perda de capital. Observe que o que você declara aqui é o desconto total. Se houver um preço de compra inicial para as opções, não subtrai isto do desconto quando você reivindica o desconto como uma perda de capital.
Alice recebeu 1600 opções em 1 de janeiro de 2011 a um preço de exercício de US $ 0,10. 25% das opções adquiridas no primeiro ano e, em seguida, cada trimestre depois de 1/16 das opções restantes serem adquiridas. Em 1 de novembro de 2014, a empresa lista no mercado de ações. Em 1º de janeiro de 2015, ela exerce todas as suas opções e, em 2 de janeiro de 2016, ela as vende por US $ 2,00 por ação.
A empresa de Alice teve os seguintes valores de mercado justo na liderança do IPO:
1 de janeiro de 2012: $ 0.20 3 de junho de 2012: $ 0.25 14 de março de 2013: $ 0.40 25 de novembro de 2013: $ 0.55 12 de abril de 2014: $ 0.70.
Em 1 de janeiro de 2015, o preço da ação era de US $ 1,50.
Alice declarou os seguintes rendimentos:
É importante notar aqui que os ganhos mencionados acima não são os mesmos que o dinheiro na mão que Alice recebeu - Alice pagou US $ 160 para exercer suas opções e as vendeu em US $ 3200, o que significa que ela ganhou US $ 3040. Se você adicionar os ganhos de desconto pré CGT de cada ano que ela declarou, eles totalizarão US $ 3040. Então, ela declarou todo o dinheiro que ela fez, o que torna complexo é que apenas uma parte desse dinheiro feito foi declarada no ano que ela fez, outras partes foram declaradas em anos anteriores como as opções adquiridas.
Se você receber ações ordinárias, digamos, como um bônus, e essas ações não têm nenhum período de aquisição e nenhum custo para você, então você tem que pagar o imposto sobre essas ações, mesmo que elas sejam restritas de alguma forma (ou seja, mesmo se você não pode vendê-los agora). O valor justo de mercado multiplicado pelo número de ações que lhe foi entregue é declarado como renda regular, não como um ganho de capital. Quando você vende essas ações, você subtrai o valor de mercado justo no momento em que foi entregue a você, e esse número é considerado o ganho de capital. Esse valor é adicionado à sua receita tributável, aplicando o desconto de ganhos de capital se as ações tiverem sido detidos por mais de um ano.
Desejo que, em algum lugar no site da ATO, a palavra "colete" e a palavra "imposto diferido" fossem vinculadas. A regra é simples: o imposto é diferido até as opções serem adquiridas. Mas para entender isso, você deve ler várias páginas de informações e exemplos. Eventualmente, você tropeça nesta página, onde o termo colete é usado. But even then there it's not clear that each month, the vested portion is no longer deferrable and must be declared, the wording makes it seem to me that if any part is still unvested, the whole lot can be deferred. Most of the examples on the ATO website talk about a share price as if the shares are traded on the stock market. But this is never the case for tech startups. Examples that describe startup situations are sorely needed. Most tech startup employee share schemes use the term "fair market value", while the ATO website uses the term "market value". It would be very useful if the website says "for companies that are not publicly traded, the market value is often referred to as the fair market value. For most startups, employees and ex employees can ask what the fair market value was at any time from their employer. If you don't know that, the ATO website makes it seem like it's this mystical number that it's up to you to use some unpublished methodology to determine, see this page. It should be stated that employees can usually obtain this from their employer. Since there is such thing as a typical employee share scheme for tech startups, and since this is becoming more and more common, the ATO should publish a fact sheet, similar to this very document, which describes in the same terms as commonly used in employee share schemes for tech startups , what their tax obligations are.
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If you’ve ever worked or considered working for a startup or fast-growing tech company, you probably have experienced or tried to learn about stock options, RSUs, and other types of equity compensation .
It is a confusing topic that is often not discussed clearly. This is unfortunate because it makes it harder to make good decisions. Many people learn the basic ideas through experience or reading, but equity compensation is a complicated and difficult area usually only thoroughly understood by professionals. Sadly, both companies and employees are routinely hurt by costly mistakes which might otherwise be avoidable.
This guide aims to improve that situation. It does not presume you have a law degree or MBA. The material is dense, but we endeavor to present it in a way that is understandable to lawyers and non-lawyers alike.
Think of the guide as a small book, not a blog. We suggest you star and refer to it in the future. An hour or two reading the material here and the linked resources could ultimately be among the most financially valuable ways you could spend that time.
This document and the discussion around it are not legal or tax advice. Talk to a professional if you need advice about your particular situation. See the full disclaimer below.
If you’re thinking of working for a company that is offering you equity, it is critical to understand both the basics and some very technical details about the exact type of compensation you are being offered, including the tax consequences. Equity compensation and tax might seem like different topics, but they are so intertwined it's hard to explain one without the other. An understanding of the underlying rules is necessary for negotiating fair offers — on both sides.
Of course, this guide can’t replace professional advice. But ask anyone who’s worked in startups and they’ll have stories of how they or their colleagues made costly mistakes as a result of not understanding the details. Assessing the advice you receive from your personal or company attorney can be easier when you have all the information to work with.
This guide applies to C corporations in the United States . It is geared towards employees, advisors, and independent contractors who want to know how stock and stock options in C corporations work. This includes most startups. Typically startups and major companies are C corporations, and not LLCs or S corporations. LLC equity compensation is different and not covered in this guide (yet). It may also be useful for founders or hiring managers, who need to talk about equity compensation with employees or potential hires, or anyone curious to learn about these topics. The aim is to be as helpful for the absolute beginner as it is for those with more experience.
We keep this brief, so you can skim and return to it easily. Sections are organized into individual points, so it’s easier to read, refer back to, contribute to, and correct. We link liberally, so we can define terms, include curated articles that have a lot more detail, and give credit where it is due.
🔹 Important or often overlooked tip ❗ “Serious” gotcha where risks or costs are significant 🔸 A gotcha or limitation to be aware of 🌪 Controversial topic where informed opinion varies significantly ☝️ Common confusion or misunderstanding, such as confusing terminology 📥 PDF or form or download.
This is an open guide . It’s open to contributions , so unlike a blog, it is living, and can be improved. While a lot of information on this topic is just a Google search away, it is scattered about. Many blogs and articles focus only on a narrow topic, are getting older, or are on sites supported by ads or other products. It should be possible to assemble this information sensibly, for free. This document was started by Joshua Levy and Joe Wallin. It’s a preliminary version, and no doubt has some errors and shortcomings, but we want to see it evolve.
If you have a question that is not answered here, please ask it here. It will help us improve the guide, and we’ll let you know if we have an answer. Even better is to file issues or PRs . We gladly credit all contributors.
This section covers the fundamental concepts and terminology around stock, stock options, and equity compensation.
Your compensation is everything you get for working for a company. When you negotiate compensation with a company, the elements to think about are cash (salary and bonus), benefits (health insurance, retirement, other perks), and equity (what we discuss here). Equity compensation refers to owning stock or having the right to buy stock in a company. In general, this guide is focused on equity compensation in corporations, not limited liability companies. The reasons for this are: (i) corporations are the most common form of startup company in the U. S. (LLCs are rarely used as the choice of entity for technology startups), and (ii) equity compensation for limited liability companies is dramatically different from equity compensation in corporations. Equity compensation is commonly used for founders, executives, employees, contractors, advisors, directors, and others. The purpose of equity compensation is twofold: To attract the best talent; and To align incentives between individuals and the interests of the company. Equity compensation generally consists of stock or stock options or restricted stock units (RSUs) in the company. We’ll define these concepts next.
Stock represents ownership of the company, and is measured in shares . Founders, investors, employees, board members, and others like contractors or advisors may all have stock. Stock in private companies frequently cannot be sold and may need to be held indefinitely, or at least until the company is sold. In public companies , people can buy and sell stock on exchanges, but in private companies like startups, usually you can’t buy and sell stock easily. Public and some private companies can pay dividends to shareholders, but this is not common among technology startups. The total number of outstanding shares reflects how many shares are currently held by all shareholders. This number starts at an essentially arbitrary value (such as 10 million) and thereafter will increase as new shares are issued. It may increase or decrease for other reasons, too, such as stock splits and share buy back. If you have stock, what ultimately determines its value is percentage ownership of the entire company, not the absolute number of shares. To determine the percentage of the company a certain number of shares represent, divide it by the number of outstanding shares. ☝️ 🔹 However, there are subtleties to be aware of regarding what this outstanding total refers to: Private companies always have what is referred to as “authorized but unissued” shares. For example, a corporation might have 100 million authorized shares, but will only have actually issued 10 million shares. In this example, the corporation would have 90 million authorized but unissued shares. When you are trying to determine what percentage a number of shares represents, you do not make reference to the authorized but unissued shares. You actually want to know the total issued, but even this number can be confusing, as it can be computed more than one way. Typically, people refer to the total number of shares “issued and outstanding” or “fully diluted.” “Issued and outstanding” refers to the number of shares actually issued by the company to shareholders. Note this will not include shares that others may have an option to purchase. “Fully diluted” refers to all of the shares that have been issued, all of the shares that have been set aside in a stock incentive plan, and all of the shares that could be issued if all convertible securities (such as outstanding warrants) were exercised. A key difference is that this total will include all the shares in the employee option pool that are reserved but not yet issued to employees. (The option pool is discussed more below.) Generally, it’s best to know the fully diluted number to know the likely percentage a number of shares is worth in the future. The terminology mentioned here isn’t universally applied, either, so it’s worth discussing it to be sure there is no miscommunication.
It is hard to value private company stock. A stock certificate is a piece of paper that entitles you to something of highly uncertain value, and could well be worthless in the future, or highly valuable, depending on the fate of the company. 🔸 Generally, selling stock in a private company may be difficult, as the company is not listed on exchanges, and in any case, there may be restrictions on the stock imposed by the company. In startups, it is typical to hold the stock until the company is sold or becomes public in an IPO . A sale or IPO is often called an exit . Sales, dissolutions, and bankruptcy are sometimes called liquidations . 🔹 Private sales: In a few cases, you may be able to sell private company stock to another private party, such as an accredited investor who wants to become an investor in the company, but this is fairly rare. This is often called the secondary market . Sales generally require the agreement and cooperation of the company. For example, typically your shares would be subject to a right of first refusal in favor of the company (meaning, you couldn’t sell your shares to a third party without offering to sell it to the company first). Another possible roadblock is that private buyers may want the company's internal financials to establish the value of the stock, and this typically requires the cooperation of the company. There have been some efforts such as SharesPost, Equidate, and EquityZen to establish a market around such sales, particularly for well-known pre-IPO companies, but it’s still not a routine practice. Quora has more discussion on this topic.
Stock comes in two main types, common stock and preferred stock . You’ll also hear the term founders’ stock , which is (usually) common stock allocated at a company’s formation. It’s complicated, but in general preferred stock is stock that has rights, preferences, and privileges that common stock does not have. For example, preferred stock usually has a liquidation preference , which gives the preferred stock owner the right to be paid before the common stock owners upon liquidation. Liquidation overhang refers to how much liquidation preference is ahead of the common stock. For example, if the company has received hundreds of millions of dollars in investments from investors, the common stock will not be worth anything on a sale unless the sale price exceeds the liquidation overhang. Generally employees and service providers receive common stock or options to purchase common stock in return for their service, and investors receive preferred stock.
Stock options (more specifically, “employee stock options” when given to employees) are contracts that allow you to buy shares, which is called exercising the options. Options are not the same as stock; they are only the right to buy stock upon and subject to the conditions specified in the option agreement. Stock options allow you to buy shares at a fixed price per share, the strike price . The strike price is generally set lower (often much lower) than what people expect will be the future value of the stock, which means you can make money when you sell the stock. Options expire. You need to know how long the exercise window will be open. Options are only exercisable for a fixed period of time, typically seven to ten years as long as you are working for the company. ❗ Importantly, they also expire when you quit working for the company (e. g., 90 days after termination of service) — so can effectively be worthless if you cannot exercise them before you leave. 🔹 Recently (since around 2015) a few companies are finding ways to keep the exercise window open for years after leaving a company, and promote this as fairer to employees. See this list, which includes Amplitude, Clef, Coinbase, Pinterest, and Quora. 🔸 Vesting: Stock and stock options may be granted to you, but they come with a variety of conditions and limitations. One of the most significant conditions is that you usually “earn” rights to the shares or options over time or under certain events. This is called vesting . Vesting usually occurs according to a vesting schedule . You vest only while you work for the company. For example, it is very common to have stock or options vest over a period of four years, a bit at a time, where none of it is vested at first, and all of it is vested after four years. Vesting schedules can also have a cliff , where until you work for a given amount of time, you are 0% vested. For example, if your equity award had a one-year cliff and you only worked for the company for 11 months, you would not get anything, since you not have vested in any part of your award. Similarly, if the company is sold within a year, depending on what your paperwork says, you may also receive nothing on the sale of the company. A very common vesting schedule is vesting over 4 years, with a 1 year cliff. This means you get 0% vesting for the first 12 months, 25% vesting at the 12th month, and 1/48th (2.08%) more vesting each month until the 48th month. For example, if you leave just before a year is up, you get nothing, but if you leave after 3 years, you get 75%. Vesting might also occur in certain situations. You may have acceleration , where vesting is triggered if a company is sold ( single trigger ) or if it’s sold and you’re fired ( double trigger ). This is common for founders and not so common for employees. Grants for advisors typically vest over a shorter period than employee grants, often two years. Advisor grants also typically have a longer exercise window post termination of service. Typical terms for advisors, including equity levels, are available from the Founder Institute’s 📥 Founder/Advisor Standard Template (FAST).
Restricted stock units (RSUs) are a different type of compensation. RSUs are an agreement by the company to issue you shares of stock or the cash value of shares of stock on a future date. Each unit represents one share of stock or the cash value of one share of stock that you will receive in the future. The date on which you receive the shares or cash payment is the settlement date . 🔸 They may vest according to a vesting schedule. The settlement date may be the time-based vesting date or a later date based on, for instance, the date of a company's IPO. RSUs are more common for larger companies and options are more common for startups. RSUs are difficult in a startup or early stage company because when the RSUs vest, the value of the shares might be significant, and taxes will be owed on the receipt of the shares. This is not a bad result when the company has sufficient capital to help the employee make the tax payments, or the company is a public company that has put in place a program for selling shares to pay the taxes. But for cash-strapped private startups, neither of these are possibilities. This is the reason most startups use stock options, not RSUs or stock bonuses or stock awards. RSUs are often considered less preferable to grantees since they remove control over when you owe tax. Options, if granted with an exercise price equal to the fair market value of the stock, are not taxed until exercise, an event under the control of the optionee. If a company awards you an RSU or restricted stock award which vests over time, you will be taxed on the vesting schedule. You have been put on “autopilot” with respect to the timing of the tax event. This can be a really bad thing if, on the date of vesting, the shares are worth a lot and consequently you owe a lot of tax. ☝️ By the way, don’t confuse “restricted stock units” with “restricted stock” , which is an entirely different thing (described next).
These are a few different types of equity awards and topics that are less common, but we mention for completeness.
“Phantom equity” is a type of compensation award that references equity, but does not entitle the recipient to actual equity in the business. These awards come under a variety of different monikers, but the key to understanding them is knowing that they are really just cash bonus plans, but the cash amounts are determined by reference to a company's stock. Phantom stock is an example. A phantom stock award would be an award where you are entitled to a payment equal to the value of a share of the company's stock, upon the occurrence of certain events. Stock Appreciation Rights are another example. An SAR gives the recipient the right to receive a payment the amount of which is calculated by reference to the appreciation in the equity of the company. Phantom equity can have significant value, but may be perceived as less valuable by workers because of the contractual nature of the promises. Phantom equity plans can be set up as purely discretionary bonus plans, which is less attractive than owning a piece of something. Warrants are another kind of option to purchase stock. As an employee or advisor, you may not encounter them, but it’s worth knowing they exist. They are generally used in investment transactions (for example, in a convertible note offering, investors may also get a warrant; or a law firm may ask for one in exchange for vendor financing). They differ from stock options in that they are more abbreviated and stand-alone legal documents, not granted pursuant to a “plan.” Also, because they are usually used in the investment context, they do not typically include service-based vesting provisions or termination at end of service, and are valid for a set number of years (e. g., 10 years).
Now for the details around using stock and options for compensation.
Companies can give equity compensation as stock awards, stock options, or RSUs. While the intent of each is similar, they differ in many ways, particularly around taxation. RSUs generally don’t make sense for early stage companies. If companies do grant stock, it may be restricted stock . In this context, “restricted” refers to the fact that the stock will be subject to repurchase at the lower of fair market value or cost, which repurchase right lapses over the service-based vesting period. Typically, stock awards are limited to executives or very early hires, since once the value of the shares increases, the tax burden of receiving them can be too great for most people. Instead, it’s more common for employees to get stock options. 🔹 At some point early on, generally before the first employees are hired, stock will be allocated to a stock option pool . A typical size for this is 20% of the stock of the company, but it can be 10%, 15%, or other sizes. Once the pool is established, then the company's board of directors grants pieces of it to employees as they join the company. Often, the whole pool is never used. The size of the pool is not just about how generous the company is with employees; it is determined by complex factors between founders and investors. 🔹 Compensatory stock options come in two flavors: Incentive stock options (ISOs) (also called statutory stock options) Nonstatutory stock options (NSOs) (also called non-qualifying stock options, or NQOs) ISOs are common for employees because they have the possibility of being more favorable from a tax point of view than NSOs. They can only be granted to employees (not independent contractors or directors who are not also employees). But ISOs have a number of limitations and conditions and can also create difficult tax consequences. Mais sobre isso abaixo. 🔹 Sometimes, to help you lower your tax burden, the company makes it possible to early exercise (or forward exercise) stock options. This means you exercise them even before they vest: you exercise them and you become a stockholder, but the company has the right to repurchase the unvested shares (at the lower of the price you paid or the fair market value of the shares) if you quit working for the company. The company will typically repurchase the unvested shares should you leave the company before the stock you’ve purchased vests. 🔸 Stock options will expire after you leave a company (typically after 90 days ). You might early exercise, or exercise at different times during your employment, depending on how much it costs and what the tax implications are. Mais sobre isso abaixo. Companies may impose additional restrictions on stock that is vested. For example, your shares are very likely subject to a right of first refusal. And it can happen that companies reserve the right to repurchase vested shares in certain events.
Equity compensation awards can give rise to federal and state income taxes as well as employment taxes and Medicare surtax charges. We’ll first back up and discuss fundamentals of how different kinds of taxes are calculated.
You must pay federal, state, and in some cases, local taxes on income. State tax rates and rules vary significantly state to state. Since federal rates are much higher than state rates, you usually think of federal tax planning first. 🔹 In general, federal tax applies to many kinds of income. If you’re an employee at a startup, you need to consider four kinds of federal tax, each of which is computed differently: Ordinary income tax — the tax on your wages or salary income, as well as investment income that is “short-term” Employment taxes — Social Security and Medicare taxes that are withheld from your paycheck. The Social Security wage withholding rate is 6.2% up to the FICA wage base. The Hospital Insurance component is 1.45%, and it does not phase out above the FICA wage base. Long-term capital gains tax — taxes on investment gains that are “long-term” are taxed at a lower rate than ordinary income Alternative Minimum Tax (AMT) — an entirely different kind of tax that has separate rules and only applies in some situations Ordinary income tax applies in the situations you’re probably already familiar with, where you pay taxes on salaries or wages. Tax rates are based on filing status, i. e., if you are single, married, or support a family, and on how much you make, i. e. which income bracket you fall under. As of 2015, there are income brackets at 10% , 15% , 25% , 28% , 33% , 35% , and 39.6% marginal tax rates. Be sure you understand how these brackets work, and what bracket you’re likely to be in. ☝️ There is sometimes a misconception that if you move to a higher bracket, you’ll make less money. What actually happens is when you cross certain thresholds, each additional (marginal) dollar money you make is taxed at a higher rate, equal to the bracket you’re in. It looks roughly like this (source). Investment gains, such as buying and selling a stock, are similarly taxed at “ordinary” rates, unless they are long-term , which means you held the asset for more than a year. 📥 You also pay a number of other federal taxes (see a 2015 summary for all states), notably: 6.2% for Social Security on your first $118,500 1.45% for Medicare 0.9% Additional Medicare Tax on income over $200,000 (single) or $250,000 (married filing jointly) 3.8% Net Investment Income Tax on investment income if you make over $200,000 (single) or $250,000 (married filing jointly) Ordinary federal income tax, Social Security, and Medicare taxes are withheld from your paycheck by your employer and are called employment taxes . 🔹 Long-term capital gains are taxed at a lower rate than ordinary income tax: 0% , 15% , or 20% . This covers cases where you get dividends or sell stock after holding it a year. If you are in the middle brackets (more than about $37K and less than $413K of ordinary income), your long-term capital gains rate is 15% (more details). State long-term capital gains rates vary widely. California has the highest, at 13.3%, while other states have none. For this reason, some people even consider moving to another state if they are likely to have a windfall gain, like selling a lot of stock after an IPO. Alternative Minimum Tax (AMT) is a complex part of the federal tax code many taxpayers never worry about. Generally, you do not pay unless you have high income (>$250K) or high deductions. It also depends on the state you’re in, since your state taxes can significantly affect your deductions. Confusingly, if you are affected, AMT tax rates are usually at 26% or 28% marginal tax rate, but effectively is 35% for some ranges, meaning it is higher than ordinary income tax for some incomes and lower for others. AMT rules are so complicated you often need professional tax help if they might apply to you. The IRS’s AMT Assistant might also help. ❗ AMT is important to understand because exercising incentive stock options can trigger AMT. In some cases a lot of AMT, even when you haven’t sold the stock and have no money to pay. Mais sobre isso abaixo. 🔹 Section 1202 of the Internal Revenue Code provides a special tax break for qualified small business stock held for more than five years. Currently, this tax break is a 100% exclusion from income for up to $10M in gain. There are also special rules that enable you to rollover gain on qualified small business stock you have held for less than five years. Stock received on the exercise of options can qualify for the Section 1202 stock benefit.
Now we’ve covered the basic concepts of equity and taxes, here are some messy details of how they interact.
As already discussed, employees can get restricted stock, stock options, or RSUs. The tax consequences for each of these is dramatically different.
Generally, restricted stock is taxed when it vests as ordinary income. Of course, if the stock is in a startup with low value, this may not result in very much tax being owed. But if it is years later from when the stock was first granted, and the company is worth a lot, the taxes owed could be significant. 🔹 However, the Internal Revenue Code offers an alternative, called a Section 83(b) election , which is an election to be taxed on the receipt of the property, even though you might not get to keep it since it has not vested. The presumption of the tax law would normally be that you do not owe tax until property you have received vests. With a Section 83(b) election, you’re telling the IRS you want to pay taxes early, on stock that is not vested yet, instead of paying as it vests. The election can potentially reduce your tax significantly: If the shares go up in value, the taxes owed on vesting might be a lot greater than the taxes owed at the time of receipt. An 83(b) election isn’t guaranteed to reduce your taxes, of course. For example, the value of the stock may not increase. And if you leave the company before you vest, you don't get the taxes you’ve paid back. ❗ You must file the 83(b) election yourself with the IRS within 30 days of the grant or exercise, or the opportunity is irrevocably lost. 🔸 Section 83(b) elections cannot be made on the receipt of a stock option. They can only be made on the receipt of actual shares of stock. If you receive an immediately exercisable stock option (meaning, an option that is early exercisable, when it is not vested), and you exercise the option before the option vests, you can make an 83(b) election on your receipt of the shares on exercise. Section 83(b) elections do not apply to vested shares; it only applies to stock that is not yet vested. Thus, if you receive options that are not early exercisable, which you cannot exercise until vested — then an 83(b) election would not apply. 🔹 Founders and very early employees will almost always want to do an 83(b) election upon the receipt of unvested shares, since the stock value is probably low. If the value is really low, and the taxes owed are not that great, you can make the election without having to pay much tax and start your capital gains holding period on the shares.
When stock vests, or you exercise an option, the IRS will consider what the fair market value (FMV) of the stock is when determining the tax you owe. Of course, if no one is buying and selling stock, as is the case in most startups, then its value isn’t obvious. For the IRS to evaluate how much stock is worth, it uses what is known as the 409A valuation of the company. The startup pays for an appraisal that sets the 409A, typically annually or after events like fundraising. In practice, this number could be low or high. 🔹 A company wants the 409A to be low, so that employees make more off options, but not low enough the IRS won’t consider it reasonable. Typically, the 409A is much less than what investors pay for preferred stock; for example, it might be only a third of the preferred stock price.
Startups generally decide to give ISOs or NSOs depending on the legal advice they get. It’s rarely up to you which you get, so you need to know about both. There are pros and cons of each from both the recipient’s and the company’s perspective. 🔸 ISOs cannot be granted to non-employees (i. e., independent contractors). ❗ 🔹 When you owe tax: When you get stock options and are considering if and when to exercise them, you need to think about the taxes. In principle, you need to think about taxes (1) at time of grant; (2) at time of exercise; and (3) at time of sale. These events trigger ordinary tax (high), long-term capital gains (low), or AMT (possibly high) taxes in different ways for NSOs and ISOs. The taxes will depend on the gain (sometimes called spread) between the strike price and the FMV, known as the bargain element , and the gain on the sale. This isn’t the whole story, but from an employee’s point of view, the key differences are (see here, here, here, and here): Restricted stock awards : Assuming vesting, you pay full taxes early with the 83(b) or at vesting: At grant: If 83(b) election filed, ordinary tax on FMV None otherwise At vesting: None if 83(b) election filed Ordinary tax on FMV of vested portion otherwise At sale: Long-term capital gains tax on gain if held for 1 year past exercise Ordinary tax otherwise (including immediate sale) NSOs : You pay full taxes at exercise, and the sale is like any investment gain: At grant and vesting: No tax if granted at FMV At exercise: Ordinary tax on the bargain element Income and employment tax withholding on paycheck At sale: Long-term capital gains tax on gain if held for 1 year past exercise Ordinary tax otherwise (including immediate sale) ISOs: You might pay less tax at exercise, but it’s complicated: At grant and vesting: No tax if granted at FMV At exercise: AMT tax event on the bargain element; no ordinary or capital gains tax No income or employment tax withholding on paycheck At sale: Long-term capital gains if held for 1 year past exercise and 2 years past grant date Ordinary tax otherwise (including immediate sale) ❗ The AMT trap: If you have received an ISO, if you exercise it may unexpectedly trigger a big AMT bill — even before you actually make any money on a sale! To make matters worse, you probably can’t sell the stock to pay the tax bill. This infamous problem (more details) has trapped many employees and bankrupted people during past dot-com busts. Now more people know about it, but it’s still a significant obstacle to plan around. (Note that if your AMT is for events prior to 2008, you’re off the hook.) 🔹 If you are granted ISOs or NSOs at a low strike price, and the bargain element is zero, then you may be able to exercise at a reasonable price without triggering taxes at all. So assuming the company allows it, it makes sense to early exercise immediately (buying most or all of the shares, even though they’re not vested yet) and simultaneously file an 83(b) election. 🔸 ☝️ Section 83(b) elections are elections to be taxed on the receipt of property even though you might have to forfeit or give back the property to the company. You can make an election on the receipt of stock, but you cannot make the election on the receipt of an option or an RSU because options and RSUs are not considered property for purposes of Section 83(b). 🔸 🌪 ISOs are often preferred by startups as it’s supposed to be better for an employee from a tax perspective. This assumes that (1) AMT won’t be triggered and (2) you’ll get low long-term capital gains rate by holding the stock for the appropriate holding periods. However, often you either run afoul of the AMT trap, or don’t hold the stock long enough with the complicated 1 year + 2 year requirement, or the spread at exercise is zero or small, so the difference wouldn’t matter anyway. NSOs do have a slightly higher tax because of the employment taxes. Overall, it’s not clear the ISO is that much better for employees, so manypeople argue for NSOs instead. 🔸 ☝️ Even more confusingly, ISOs can make it harder to meet the long-term capital gains holding period. Many people expect early exercise together with an 83(b) election will help them hold the stock longer, to qualify for long-term capital gains. While this is true for NSOs, there is a murky part of the rules on ISOs that implies that even with an 83(b) election, the capital gain holding period does not begin until the shares actually vest. So, if you want to immediately exercise an option and file a Section 83(b) election, and you might have liquidity soon, it’s better if you can have it be an NSO.
If you are awarded RSUs, each unit represents one share of stock that you will be given when the units vest. 🔸 When you receive your shares you are taxed on their value at that time. If you are an employee, this means you have to write a check to the company to cover your income and employment tax withholding. If you receive an RSU when the stock is of little value, you cannot elect to be taxed on the value of that stock when you receive the RSU — you pay taxes at vesting time, based on the shares’ value at that time. 🔸 There is a combination of big problems for RSUs in private companies: You will owe tax when you receive the shares — even though they are illiquid. You can't minimize the impact of an increase in value of the underlying shares between the date you receive the RSU and the date it is settled. If you are an employee you will have to write a check to the company to satisfy your income and employment tax withholding. 🔸 RSUs are less attractive than options from a tax point of view because you cannot make an 83(b) election with respect to an RSU. By contrast, if you receive a stock option, as long as it is priced at fair market value, you will have no income upon receipt of the options, and your income tax and employment tax consequences will be deferred until you exercise — an event under your control for the most part. Taxation summary (compare with above): At grant: No tax At vesting/delivery: Ordinary tax on current share value At sale: Long-term capital gains tax on gain if held for 1 year past exercise Ordinary tax otherwise (including immediate sale)
This section is a quick refresher on how companies raise funding and grow, as this is critical to understanding the value of a company and what equity in a company is worth.
The stage of a startup is largely reflected in how much funding it has raised. Very roughly, typical levels are: Bootstrapped : No funding — founders are figuring out what to build or starting to build with their own time or resources. Series Seed ($250K to $2 million): Figure out the product and market. Series A ($2 to $15 million): Scaling product and making the business model work. Series B (tens of millions): Scaling business. Series C, D, E, etc. (tens to hundreds of millions): Continued scaling of business. 🔸 Most startups don’t get far. Very roughly, if you look at angel investments, more than half of investments fail, one in 3 are small successes (1X to 5X returns), one in 8 are big successes (5X to 30x), and one in 20 are huge successes (30X+). 🔸 Each stage reflects the removal of risk and increased dilution . For this reason, the equity team members get is higher in the earlier stages (starting with founders) and increasingly lower as a company matures. (See the picture above.) 🔹 It is critical to understand risk and dilution to know the possible future value of equity. This article from Leo Polovets gives a good overview. 🔹 If you’re talking with a startup, there are lots of questions to ask in order to assess the state of the company's business. Startups are legitimately careful about sharing financial information, so you may not get full answers to all of these, but you should at least ask: How much money has the company raised (including in how many rounds, and when)? What did the last round value the company at? Will it likely raise more capital soon? How long will your current funding last? (This will likely be given at current burn rate, i. e. no additional hiring.) What is the hiring plan? (How many people over what time frame?) What is the revenue now, if any? What are the revenue goals/projections? Where do you see this company in 1 year and 5 years? Revenue? Employees? Market position?
It takes quite a bit of know-how to be able discuss, understand, and evaluate equity compensation offers. If you don’t yet have an offer, see the sections below on evaluating a company and negotiation, as well.
We all know the value of cash. But determining the value of equity is hard, because you have to figure out or make guesses about several things: Stock value : The value the company will have in the future, which depends on the value of the business, and the number of shares you own. Vesting and liquidity : When you actually will own the shares and when you’ll be able to sell them. Tax : Both purchase and sale of stock can require that you pay taxes — sometimes very large amounts. Also, there are several kinds of taxes: Income, capital gains, and AMT. 🔹 Know the percentage: Knowing how many shares of stock or stock options is meaningless unless you know the number of outstanding shares. What matters is the percentage of the company the shares represent. Typically it would be in percent or basis points (hundredths of a percent). Some companies don’t volunteer this information unless you specifically ask, but it’s always a fair question, since without it, the offer of shares is almost meaningless. You need to understand the type of stock grant or stock option in detail, and what it means for your taxes, to know the likely value. In some cases, high taxes may prevent you from exercising, if you can’t sell the stock, so you could effectively be forced to walk away from the stock if you can't afford to exercise. ❗ If you do get an offer, you need to understand the value of the equity component. You need quite a bit of information to figure this out, and should just ask. If the company trusts you enough to be giving you an offer, and still doesn’t want to answer these questions about your offer, it’s a warning sign. (There are lots of otherarticles with more details about questions like this.) 🔹 Information that will help you weigh the offer might be: What percentage of the company do the shares represent? What set of shares was used to compute that percentage (i. e. is this really the percentage of all shares, or some subset)? What did the last round value the company at (i. e. the preferred share price times the total outstanding shares)? What is the most recent 409A valuation? When was it done, and will it be done again soon? Do you allow early exercise of my options? Are all employees on the same vesting schedule? Is there any acceleration of my vesting if the company is acquired? Do you have a policy regarding follow-on stock grants? Does the company have any repurchase right to vested shares? Finally, consider the common scenarios for exercising options, discussed below.
If you don’t yet have an offer, it’s important to negotiate firmly and fairly to get a good one. A guide like this can’t give you personal advice on what a reasonable offer is, as it depends greatly on your skills, the marketplace of candidates, what other offers you have, what the company can pay, what other candidates the company has found, and the company’s needs and situation. However, this section covers some basics of what to expect with offers, and tips on negotiating an offer.
🔹 Most companies, especially well-established ones, give roughly equal treatment to candidates. But even so, harder negotiators — or ones that are more sophisticated — can often get better offers. Many companies will give some flexibility during negotiations, letting you indicate whether you prefer higher salary or higher equity. Candidates with competing offers almost always have more leverage and get better offers. Salaries at startups are often a bit below what you’d get at an established company, since early on, cash is at a premium. For very early stage startups, risk is higher, offers can be more highly variable, and variation among companies will be greater, particularly on equity. The dominant factors determining equity are what funding stage a company is at, and your role. If no funding has been raised, large equity may be needed to get early team members to work for very little or for free. Once significant funding of an A round is in place, most people will take typical or moderately discounted salaries. Startups with seed funding lie somewhere in between.
🔹 🌪 There are no hard and fast rules, but for post-series A startups in Silicon Valley , this table, based on the one by Babak Nivi, gives rough ballparks equity levels that many think are reasonable. These would usually be restricted stock or stock options with standard 4-year vesting schedule. These apply if each of these roles were hired just after an A round and are also being paid a salary (i. e. not already founders or hired before the A round). The upper ranges would be for highly desired candidates with strong track records. CEO: 5–10% COO: 2–5% VP: 1–2% Independent board member: 1% Director: 0.4–1.25% Lead Engineer 0.5–1% Senior Engineer: 0.33–0.66% Manager or Junior Engineer: 0.2–0.33% For post-series B startups , equity numbers would be much lower. How much lower will depend significantly on size of the team and valuation of the company. Seed-funded startups would be higher than the above numbers, sometimes much higher if there is little funding. 🔹 One of the best sources of information about what is reasonable for a given company and candidate is to look at offers from companies with similar profiles on AngelList. A 2014 survey of AngelList job postings by Leo Polovets has excellent summary of equity levels for the first few dozen hires at these early-stage startups. For engineers in Silicon Valley, the highest (not typical) equity levels were: Hire #1: up to 2%–3% Hires #2 through #5: up to 1%–2% Hires #6 and #7: up to 0.5%–1% Hires #8 through #14: up to 0.4%–0.8% Hires #15 through #19: up to 0.3%–0.7% Hires #21 through #27: up to 0.25%–0.6% Hires #28 through #34: up to 0.25%–0.5% Keep in mind much of the above information is heavily biased toward early-stage Silicon Valley tech startups, not companies as a whole across the country.
Companies will always ask you what you want for compensation. And you should always be cautious about answering. If you name a number that you’ll accept, you can be fairly sure the company won’t exceed it, at least not by much. Some argue that a good tactic in negotiating is to start higher than you will be willing to accept, so that the other party can “win” by negotiating you down a little bit. Keep in mind, this is just a suggested tactic by some, and not a hard and fast rule. If you are inexperienced and are unsure what a fair offer should look like, avoid saying exactly what you want for compensation very early in discussions. It’s common for hiring managers or recruiters to ask this early in the process, just to take advantage of candidates that don’t have a good sense of their own worth. Tell them you want to focus on the opportunity as a whole and your ability to contribute before discussing numbers. Ask them to give you a fair offer once they understand your worth to the company. If you are experienced and know your value, it’s often in your interest to state what sort of compensation and role you are looking for to anchor expectations. You might even share your expectations early in the process, so you don’t waste each other’s time. Discuss what your compensation might be like in the future. No one can promise you future equity, salary, or bonuses, but it should be possible to agree what they will look like if you have outstanding performance and the company has money. If you’re coming from an established company to a startup, you may be asked to take a salary cut. This is reasonable, but it’s wise to discuss explicitly how much it is, and when that will be changed up front. For example, you might take 25% below your previous salary, but there can be an agreement that this will be corrected if your performance is strong and the company gets funding. 🔹 Always negotiate non-compensation aspects before agreeing to an offer. If you want a specific role, title, opportunity, visa sponsorship, special treatment (like working from home), or have timing constraints about when you can join, negotiate these early, not late in the process. ❗ Get all agreements in writing, if they are not in your offer letter. 🔹 If you’re going to be a very early employee, consider asking for a restricted stock grant instead of stock options, and a cash bonus equal to the tax on those options. This costs the company a little extra paperwork (legal costs), but then you won’t have to pay to exercise, and then if you file an 83(b) election, you’re simplifying life, eliminating the AMT issues of ISOs and maximizing chances of qualifying for long-term capital gains tax. Getting multiple offers is always in your interest. If you have competing offers, sharing the competing offers can be helpful, if they are good. However, dragging out negotiations excessively so you can “shop around” an offer to other companies is considered bad form by some people, so it’s thoughtful to be judicious, and try to time things at once to the extent possible. Reneging on offers: Do not accept an offer verbally or in writing unless you’re ready to stand by your word. In practice, occasionally people do accept an offer and then renege. In the United States, this is considered a very bad thing to do, especially if it put the company in a difficult position (e. g. they declined another key candidate based on your acceptance), and may hurt your reputation in unexpected ways later. Robby Grossman gives a good overview of equity compensation and negotiation suggestions.
Once you have stock options, what are the possible scenarios for exercise? Generally, you should consider these possibilities: Exercise and hold : You can write the company a check and pay any taxes on the spread. You are then a stockholder, with a stock certificate that may have value in the future. As discussed above, you may do this: “Early”, even immediately upon grant Before vesting (if early exercise is available to you) Sometime after vesting, or - After leaving the company, as long as the exercise window is open. 🔸 Recall that often the window closes soon after you leave a company, e. g. 90 days after termination. Wait until acquisition : If the company is acquired for a large multiple of the exercise price, you may then use your options to buy valuable stock. However, as discussed, your shares could be worth next to nothing unless the sale price exceeds the liquidation overhang, since preferred stock is paid up first. 🔸 Secondary market : As discussed above, in some cases it’s possible to exercise and sell the stock in a private company directly to a private party. But this generally requires some cooperation from the company and is not something you can always count on. Cashless exercise : In the event of an IPO, a broker can allow you to exercise all of your vested options and immediately sell a portion of them into the public market, removing the need for cash up front to exercise and pay taxes. 🔹 Note that some of these scenarios may require significant cash up front, so it makes sense to do the math early. If you are in a tight spot, where you may lose valuable options altogether because you don’t have the cash to exercise, it’s worth exploring each of the scenarios above, or combinations, such exercising and then selling a portion to pay taxes. In addition, there are a few funds or individual investors who may be able to front you the cash to exercise or pay taxes in return for an agreement to share profits. Alex MacCaw’s guide includes a few more detailed example scenarios.
This section covers a few kinds of documents you’re likely to see. It’s not exhaustive, as titles and details vary.
When you are considering your offer from the company, make sure you have all of the documents. These should be: Your offer letter, which will detail salary, benefits, and equity compensation. An Employee Innovations Agreement or Proprietary Information and Inventions Assignment Agreement or similar, which concerns intellectual property. In addition, if you have equity compensation, at some point — possibly weeks or months after you’ve joined — you should get a Summary of Stock Grant or Notice of Stock Option Grant, or similar document, detailing your grant of stock or options, along with all details such as number of shares, type of options, grant date, vesting commencement date, and vesting schedule. It will come with several other documents, which may be exhibits to that agreement: Stock Option Agreement Stock Plan (sometimes called a Stock Option Plan, or Stock Award Plan, or Equity Incentive Plan) Code Section 409A Waiver and Release (sometimes this is part of the Stock Option Agreement) If you are exercising your options you should also see paperwork to assist with that purchase: Exercise Agreement. Instructions and template for early exercise and 83(b) election, if applicable. End of year tax documents 📥 You should receive a form 3921 or 3922 from your company if you exercised ISO options during the year.
These are scenarios that can be very costly for you if you aren’t aware of them.
❗ Do not accept an offer of stock or shares without also asking for the exact number of total shares (or, equivalently, getting the exact percentage of the company those shares represent). It’s quite common for some companies to give offers of stock or options and tell you only the number of shares. Without the percentage, the number of shares is meaningless. Not telling you is a deeply unfair practice. A company that refuses to tell you even when you’re ready to sign an offer is likely giving you a very poor deal. 🔸 If you’re looking at an offer, work out whether you can and should early exercise, and what the cost to exercise and tax will be, before accepting the offer. ❗ If you join a company right as it raises a new round, and don’t have the chance to exercise right away, they may potentially issue you the options with the low strike price, but the 409A of the stock will have gone up. This means you won’t be able to early exercise without a large tax bill. In fact, it might not be financially feasible for you to exercise at all. 🔸 Vesting starts on a vesting commencement date. Sometimes stock option paperwork won’t reach you for months after you join a company, since it needs to be written by the lawyers and approved by the board of directors. This usually isn’t a big problem, but do discuss it to make sure the vesting commencement date will reflect the true start date of when you joined the company, not when the stock option is granted. 🔸 If you’re going to early exercise, consider it like any investment. Don’t believe every projection about the value of the company you hear. Founders will tell you the best-case scenario. Remember, most startups fail. Do your research and ask others’ opinions about likely outcomes for the company. ❗ It may not be common, but some companies retain a right to repurchase (take back) vested shares. It’s simple enough to ask, “Does the company have any repurchase right to vested shares?” (Note repurchasing unvested shares that were purchased via early exercise is different, and helps you). If you don't want to ask, the fair market value repurchase right should be included in the documents you are being asked to sign or acknowledge that you have read and understand. (Skype had a complexcontroversy related to this). You might find a repurchase right for vested shares in the Plan itself, the Stock Option Agreement, the Exercise Agreement, the Bylaws, the Certificate of Incorporation or any other stockholder agreement.
Here are some costly, common errors to watch out for on the taxation side.
❗ If you are going to file an 83(b) election, it must be within 30 days of stock grant or option exercise. Note that often law firms will take a while to send you papers, so you might only have a week or two. If you miss this window, it could potentially have giant tax consequences, and is essentially an irrevocable mistake — it’s one deadline the IRS won’t extend. When you file, get documentation of from the post office, delivery confirmation, and include a self-addressed stamped envelope for the IRS to send you a return receipt. (Some people are so concerned about this they even ask a friend to go with them to the post office as a witness!) ❗ One of the most serious tax-related mistakes you can make is to exercise ISOs without first knowing the impact on your AMT obligations. If there is a large spread between strike price and 409A value, you are potentially on the hook for a very large tax bill — even if you can’t sell the stock. This has pushed people into bankruptcy. It also caused Congress to grant a one time forgiveness, but the odds of that happening again are very low. Understand this topic and talk to a professional if you exercise ISOs. ❗ If you exercise your options, and your income had been consulting, not employment (1099, not W-2), you will be subject to the self-employment tax in addition to income tax. Self employment taxes consist of both the employer and the employee side of FICA. Meaning, you will owe the Social Security tax component, 6.2%, up to the FICA wage base, and you will owe the Hospital Insurance component, 2.9% on all of the income. 🔸 Thoughtfully decide when to exercise options. As discussed, if you wait until the company is doing really well, or when you are leaving, it can have serious downsides.
David Weekly, An Introduction to Stock & Options for the Tech Entrepreneur or Startup Employee Anonymous, What I Wish I'd Known About Equity Before Joining A Unicorn Investopedia, Employee Stock Options: Definitions and Key Concepts Dan Shapiro, Vesting is a hack Guy Kawasaki, Nine Questions to Ask a Startup Alex MacCaw, An Engineer’s Guide to Stock Options Robby Grossman, Negotiating Your Startup Job Offer Julia Evans, Things you should know about stock options before negotiating an offer Joe Wallin, RSUs vs. Restricted Stock vs. Stock Options Joshua Levy and Joe Wallin, The Problem With Immediately Exercisable ISOs Barry Kramer, The Tax Law that is (Unintentionally) Hammering Silicon Valley Employees Startup Law Blog, Incentive Stock Options vs. Nonqualified Stock Options Startup Law Blog, Top 6 Reasons To Grant NQOs Over ISOs Investopedia, How Restricted Stock And RSUs Are Taxed Investopedia, Introduction To Incentive Stock Options Forbes, Ten Tax Tips For Stock Options Wealthfront, When Should You Exercise Your Stock Options? Wealthfront, The 14 Crucial Questions about Stock Options Leo Polovets, Valuing Employee Options Leo Polovets, Analyzing AngelList Job Postings, Part 2: Salary and Equity Benchmarks Inc, 5 Questions You Should Ask Before Accepting a Startup Job Offer GigaOm, 5 Mistakes You Can’t Afford to Make with Stock Options Wealthfront, How Do Stock Options and RSUs Differ? Mary Russell, Startup Equity Standards: A Guide for Employees Mary Russell, Can the Company Take Back My Vested Shares? Fairmark, AMT and Long-Term Capital Gain NCEO, Stock Options and the Alternative Minimum Tax (AMT) Accelerated Vesting, What Is An 83(b) Election and When Do I Make It? Fenwick, Section 409A Valuations and Stock Option Grants for Start-up Technology and Life Science Companies Venture Hacks, How to make a cap table VentureBeat, Beware the trappings of liquidation preference Orrick, Startup Forms: Equity Compensation Matthew Bartus, Option Grants: Fully Diluted or Issued and Outstanding Babak Nivi, The Option Pool Shuffle (and table of equity ranges) 🔨 TLDR Stock Options and OwnYourVenture are simulators illustrating equity calculations and dilution.
This guide and all associated comments and discussion do not constitute legal or tax advice in any respect. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. The author(s) expressly disclaim all liability in respect of any actions taken or not taken based on any contents of this guide or associated content.
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The De-Nerding Wanstrath and Preston-Werner want GitHub to be used for collaborations that have nothing to do with software.
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The De-Nerding Wanstrath and Preston-Werner want GitHub to be used for collaborations that have nothing to do with software.
It's "Beer:30," and Tom Preston-Werner is standing at a lectern in the vast San Francisco loft where GitHub makes its home. Before him, arrayed on a mashed-up assortment of chairs and couches or topping up a glass of whiskey at the overstocked house bar, are maybe 40 GitHub employees; another 44 around the world are watching a live feed. Preston-Werner has the tired eyes and untended facial hair of a new father, and the low-def biceps of a software engineer. Atop his head sits a mammoth banana-yellow foam-rubber cowboy hat.
The weekly gathering begins with Preston-Werner welcoming a few new employees. The co-founder and CEO then runs through a series of shout-outs to folks who have finished off pieces of code designed either to improve the GitHub site or to make it work better for clients. Then Preston-Werner takes a few minutes to wax philosophical. Taking a page from science writer Steven Johnson's Where Good Ideas Come From , he invokes the importance of "serendipitous interactions," the way powerful ideas can emerge from the most random collisions of people, thoughts, and artifacts. He urges his people--many of them recent hires, most of them in their early 30s, tops--to go out and cultivate new experience, to engage with the unknown. To underline his point, Preston-Werner reminds them that out of the investment the company received in July from Andreessen Horowitz, "about half of a percent" was picked up by Ron Conway, known in these parts as the godfather of Silicon Valley. Preston-Werner met Conway at a Y Combinator conference. Serendipity, indeed.
That venture round was worth $100 million. It valued this little five-year-old company at $750 million. As Preston-Werner speaks, between pulls on a beer, his giant foam chapeau jiggles gently.
As nerd endeavors go, GitHub is pretty much at the top of the food chain. What began as a private project with zero commercial intent has since emerged as one of the world's most--if not the most--powerful development tools for software. In just a few years, it has inserted itself at the center of the developer universe by making it easy for coders around the world to work together. If "software is eating the world," as Andreessen Horowitz co-founder Marc Andreessen put it not long ago, GitHub is where much of that software gets its teeth.
The Andreessen Horowitz bet was the "biggest investment we've ever made," says Peter Levine, the partner who now sits on GitHub's board. It's not hard to see why the VC firm went for it: GitHub's momentum is astonishing. The company says it took 38 months to host its millionth project on the site; the five millionth came in just two months and 21 days. "I don't know a start-up that's not on GitHub," says Jay Sullivan, VP of products at Mozilla, maker of the Firefox Web browser. In other words, your next company, or parts of it, will be built here.
GitHub started as an effort by Preston-Werner and co-founder Chris Wanstrath to solve what Preston-Werner calls a "pain-in-the-ass problem": using something called Git, a version control system developed by Linus Torvalds, the creator of Linux. A version control system is a tool that allows multiple coders to work on the same piece of software without losing track of the various changes made in each version or allowing the source code to be corrupted with lots of contradictory fixes. Torvalds built Git in reaction to the centralized structure of previous version control tools, which made it all but impossible for developers to work together independently. And though Torvalds's system "makes collaboration possible, it doesn't make it easy," says Preston-Werner. He sensed that Git could be "this superpowerful thing if only you could understand it."
Preston-Werner grew up in Dubuque, Iowa; his mom was a special-education teacher and his stepdad an engineer. (His biological father passed away when Tom was a kid.) Preston-Werner was the classic engineer-in-training: ripping apart pieces of gear his stepdad had lying around, hacking the family TRS-80 PC, studying How Things Work books. Eventually, just as the dot-com boom was cresting, he set sail for Harvey Mudd College, east of Los Angeles. After two years, he dropped out to be part of a company run by two fellow Mudd students; then he struck out on his own, first running a digital design firm, which taught him "all of the crap it takes to run a business--taxes, all that," then creating Gravatar, the technology that allows your avatar to follow you around the Web from site to site.
He sold Gravatar to Matt Mullenweg, the founder of WordPress, then paid off his credit card debt and enjoyed the first bit of breathing room he had known in several years. That's when he met Wanstrath, who is still only 27, six years younger than Preston-Werner. ("I started GitHub when I was really young, so I don't have a bio or anything," says Wanstrath, who looks like Gregg Allman run through a reverse aging machine. "My life story's pretty short.") The two were part of the growing crew of developers working in Ruby on Rails, a Web development framework that has itself become a major force. "One of the things we talked about in the Ruby community was Git," Wanstrath recalls, "at the time a very esoteric version control system." In October 2007, they set about improving Git, partly for fun and partly to make it more useful in their professional lives. They stayed in their day jobs and noodled at GitHub primarily at bars and coffee shops around the SoMa neighborhood. During this period, they picked up two other co-founders, PJ Hyett and Scott Chacon.
GitHub went live in February 2008, and soon Geoffrey Grosenbach, founder of PeepCode, essentially demanded to pay for the service. Suddenly, a dork pastime was a business, and by July, Preston-Werner was confident enough in it that he passed up the offer of a $300,000 bonus and stock options from Microsoft, which had acquired Powerset, the company he worked for at the time.
Today, a programmer in Dubai can drop a chunk of code in a "repository" on GitHub's site, post a description of his project and what kind of help he's looking for, and then watch as coders around the world dig in and contribute. If the software is open source (that is, free for the taking by anyone who wants it, with minimal restrictions), the "repo" is visible to all three million developers who work on GitHub. Depending on how interesting the idea is--it might be a simple feature for a website or an entire operating system--hundreds or even thousands of people might "fork," or copy, the code and start working to improve it. When a developer thinks he has cracked whatever problem or portion of the problem he was working on, he can make a "pull request" to the "maintainer" of the repository to review his suggested fixes. The maintainer integrates some or all of the new code as he sees fit.
GitHub is in some ways like Wikipedia--highly social, tapping into the human desire to contribute to a common goal. When so many brains are engaged at once, the process of development, refinement, and deployment is radically accelerated. Each revision should, in theory, make the code more powerful, get it closer to the point where it can be shipped as an element in a larger software product, whether open source or commercial. "If the barrier to collaboration is too high, then you're not gonna do it," Preston-Werner says. "But once you get that barrier low enough, once you pass a certain threshold, everybody's contributing." GitHub is adding users at the rate of 10,000 per weekday.
Unlike Wikipedia, however, GitHub has a business model. Essentially, GitHub offers programmers and companies a choice: They can use the collaborative platform for free as a place to build open-source software, or they can pay to use it behind a wall, where they can develop proprietary software that forms part of a commercial product or service. In the first case, your willingness to make your code available to everyone earns you the right to exploit the web of open-source coders working on the GitHub site. In the second, your company's developers work in private, using the collaborative features GitHub has built but not its distributed global network of talent.
"If you have code on GitHub but the whole world can't see it, then you're paying for it," says Preston-Werner. There are three payment tracks. One is a personal plan that costs as little as $7 a month. (The price is based on the number of repositories you have.) Then there is an organization plan, which has features for more sophisticated team management and starts at $25. The big-money option is the enterprise plan, which involves clients downloading a version of GitHub to live locally on their servers. It can cost millions of dollars a year. Enterprise clients include Lockheed Martin, Microsoft, LivingSocial, VMware, and Walmart. GitHub doesn't talk about how much these companies, specifically, are paying, but it has hundreds of thousands of paying customers between the website and the enterprise client base.
Levine, the Andreessen Horowitz partner, says his firm was first drawn to GitHub because it was "a growing enterprise with 300 percent year-over-year annualized growth--in a market that has been unchanged for a very long time." Sounding amazed even several months on, he marvels that the co-founders had gotten to "really interesting levels of profitability and revenue without a dime of outside funding and without even building out a sales organization--they're all engineers!"
A grown-up sales operation, Levine says, is just a first "tactical" step. He and the lads have big plans.
For survivors of Web 1.0, GitHub's offices bring the memories--or night sweats--flooding back. The 14,000-square-foot loft is rigged out with air hockey, Ping-Pong, a pool table, and an Xbox 360 (hooked up to side-by-side flat screens). There's a catered Thursday lunch (families are invited), a fridge full of microbrew, and a handmade wooden kegerator with an inlaid Octocat, GitHub's fantastical mutant mascot. Numerous side rooms house the many other toys designed to "optimize for happiness" for GitHub's 145 employees, who work whenever and wherever they like: electric guitars, an amp, and a full matched set of harmonicas in the jam room; a Skype chamber; a womb room with low lighting, a shag rug, and four egg chairs. There's a ladies' lounge with a pink, plasticized fainting couch, and the executive lounge, complete with faux-antique globe (which conceals a 16-year-old bottle of Lagavulin) and lots of manly leather. Actually, the whole office smells of leather--and revenue, which is what makes it so not like 1999.
If the term open-source software triggers some sort of narcolepsy neurotransmitter in you, you are not alone. It certainly did in me, to the extent that I thought about it at all. But the further I wandered in this world, the more wondrous I found it to be. Those of us who don't write code tend to be oblivious to the sheer labor involved in creating thousands or even millions of lines of the stuff, all of which have to function perfectly if a piece of software is to run bug free. A single project on GitHub can entail months or years of work and countless strings of dialogue among maintainers and coders hoping to contribute.
It's hypergranular work and has to be, not least because open-source software has become the bedrock of almost every company on earth. From Apple to Microsoft to the tiniest start-up, open source is part of the software stack--and many companies are built mostly from open source. And that, of course, is the point: Open source means a new business doesn't have to start from zero; it can pull down prefab pieces of software infrastructure for free, building only the bits it needs to bring its product to life. John Pettitt is founder and CEO of Repost. us, a service that allows news articles to be embedded as easily as video, and to carry their advertising and analytics along with them; earlier, he was the founder of Software, which became Beyond, and CyberSource, a credit card fraud detection company bought by Visa for $2 billion in 2010. Back in 1994, when Pettitt was starting Software, he says, "there was no e-commerce software, there was no e-commerce platform; I had to write my own credit card processing, I had to write my own storefront. Everything we had to do, we had to do from scratch, because there were none of the building blocks there." Pettitt built much of his new company on GitHub. "Today, you can sort of Lego things together in a way you never could before," he says. "And the corpus of information and tools is growing at a huge rate."
Those Legos form the skeletal system of almost every new company; the profitmaking intellectual-property layer is skin thin, sitting on top. "It's no different than having two-by-fours and electricity," Preston-Werner says. "If you have a ready-made Web server and Web framework, for example, that represents hundreds of thousands or millions of man-hours of work that you don't have to put into creating a product."
That is exactly why GitHub is formidable: It is at once a lumberyard and a workspace. Entrepreneurs on the site can find, or help develop, almost all of the open-source raw materials they need and set up their own closed place to integrate those materials with their IP. What's more, by simplifying Git, GitHub has turned a tool even serious coders found arcane into something useful to the "casual forker," in Wanstrath's term. "We want to enable people who don't know each other to collaborate on the same thing, toward the same goal," says Wanstrath. "This is all I want to do--forever."
There has been considerable rumbling lately that the Web is turning into a Monopoly board or mall, with a few big anchor stores and a bunch of rabble scrambling either to build on top of them or to find a survivable place in their shadows. "The openness that drove the Web and its richness are definitely under attack," says Tim O'Reilly, founder and CEO of O'Reilly Media, the producer of industry-leading programming manuals, tech magazines, and conferences. "This happens again and again when something new comes on the scene. There's usually a huge sharing economy, with lots of innovation and lots of openness, and then some animals become 'more equal than others,' in Orwell's wonderful phrase, and then it tends to start to stagnate. But that impulse to create goes and bursts out somewhere else."
That somewhere, at least right now, would seem to be GitHub. In fact, it's possible to see GitHub as a new killer app for the Internet--a "mini Web," as Preston-Werner describes it, a place where networked minds actually build things together.
"The network effect is awesome," Preston-Werner says, sitting in the situation room, another ironically themed chamber (this one has a red Batphone to nowhere, a massive table in burled veneer, Big Boy Executive Chairs, and LED signs with the time zones of various GitHub outposts). "There are standards now based on GitHub, so everybody can come in to a new project and immediately know how to get the code, how to contribute code, how to review the code, how to submit issues to the code base. The more people do that, the stronger the effects and the gains from having a uniform, well-known, standardized system. And that's happening really, really rapidly."
That network effect gets reinforced in numerous ways. For example, a developer on GitHub acquires a social reputation, and that reputation becomes a way to find new, paying work; the network's role as a placement service helps it to grow still larger. The truly badass potential of GitHub, though, is that it isn't only a force multiplier for producing code but also for the generation of ideas--and for the products created from those ideas. As Preston-Werner says, projects hosted on GitHub will increasingly be "not just code, but anything that involves working on files on a computer: books, hardware projects, schematics for circuit boards, legal documents--anything that ends up in a digital format." This is already happening on the site, including projects for books (several coding manuals, for example, are being written on GitHub--including one about GitHub), hardware (OpenRov has the hardware design, software, and circuit schematics for its underwater robots on GitHub), and government (the U. S. and U. K. governments both work on the site).
Wanstrath, who handed the CEO title over to Preston-Werner in June and is an absolute geyser of GitHub zeal, agrees that as more people pile into the service, a shift is taking place: "Now we are finding that it's not just about the code; it's about, 'Hey, I want to work on this with you.' That's really eye-opening to us and gets everyone here superexcited. Working with someone else is just an awesome part of being alive. Creating art, creating tools, creating documents, doing homework, anything--it's not limited to programming. I don't see why musicians wouldn't want to work this way, for example."
In other words, as GitHub gets bigger, its power becomes less about the platform itself than about the people on it. One day in the GitHub offices, I ran into David ten Have, a New Zealander (and an Inc. cover subject in 2009). Ten Have is founder and CEO of Ponoko, a company focused on developing "the tools to enable digital fabrication." That means a system that could, one day, given a disassembled MP3 player, spec out each component, relay those specs to a 3-D printer, and have the printer produce all the pieces required for assembly by a nearby robot. Ten Have says, "GitHub makes this easier and faster, because it has a platform that enables the collaboration and, most important, the social norms to encourage people to look at the world collaboratively. That is fundamentally why GitHub is important beyond software: Ethos and attitude are transferable--into lawmaking, product design, manufacturing, biology, chemistry, dance, music, moviemaking, books, cooking. The list goes on."
And on. Which suggests that GitHub has only begun to grow--as a business, as a tool for business, and as a cultural force. "It's this huge ricochet effect," Wanstrath says, nearly manic with optimism. "We are this thing that people can step on, like an elevator, and then go shooting into space."

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