Pre-IPO
Can (or should) you exercise your options? When can you sell your stock?
Pre-IPO covers the world of stock options in private companies and startups. This overview page presents selected articles and FAQs from the subtopics in this section. For the full content of a subtopic, click on a link in the upper left.
Articles (Jump to FAQs)
Edwin L. Miller, Jr.
Understand what could happen to your stock options or restricted stock in venture capital financings, in an acquisition, or in an IPO. Part 1 looks at M&A deals; Part 2 analyzes IPOs.
Edwin L. Miller, Jr.
Stock options and restricted stock in pre-IPO companies can create substantial wealth, but you need to understand what might happen to your stock grants in venture capital financings, in an acquisition, or in an initial public offering. While Part 1 looks at venture financings and M&A deals, Part 2 analyzes IPOs.
David Cowles
Making the decision to exercise now or later has always been difficult. It has become even more confusing with a twist at pre-IPO companies that allows you to exercise options immediately upon grant.
Alisa J. Baker
NEW! Part 1 looked at the problems of conflicting or inconsistent provisions among different documents. Part 2 discusses which existing documents and rules nonfounder executives must consider when negotiating for equity compensation during the early (pre-public) stages of a company's development and growth.
Joanna Glasner and Bruce Brumberg
Don't be discouraged by stock market volatility and underwater stock options. As the experts note, stock grants are tools for building wealth in the long term.
David Cowles
Early exercise options are associated with risks and tax complexities. These issues, however, should not scare you from taking advantage of them when you know how to maximize their value.
Michael Frank
The IRS has issued final regulations on ISOs. Understand how these final regulations increase the risks of early exercise.
Ellie Kehmeier and Elizabeth Drigotas
The final rules clarify and consolidate a tangle of proposed, temporary, and final regulations, as well as other guidance, that governed the taxation of ISOs, including rules for disqualifying dispositions.
IRS and US Department of the Treasury
The Treasury and IRS have warned taxpayers about promoters who claim they can help optionholders avoid income tax or AMT on stock option exercises. The notice presents several frivolous arguments you should not make on tax returns. The IRS has been aggressively pursuing and winning cases against such arguments. (To read this you need the Adobe Acrobat Reader, which you can obtain free
here.)
Bill Bischoff
SmartMoney.com, 8/23/00
You've got options that are unvested, but you can exercise them. These immediately exercisable options are sweeping the pre-IPO world. Learn some of the basics and must-do steps, including the Section 83(b) election.
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FAQs (Jump to articles)
Typically, only for-profit corporations are eligible to offer stock options...
A repurchase right is a company's contractual right to buy from an employee any stock resulting from the exercise of an option. The repurchase right can be exercised even if the employee does not...
If your employer is a for-profit corporation, it probably can offer stock options to its employees. There may, however, be many reasons why your employer is not offering options...
Yes, though for two reasons S-corporations generally do not issue stock options. First...
Some companies grant stock options that are immediately exercisable, but you receive shares that still need to vest before you own them outright. Until then, the stock is still subject to a repurchase right if your employment ends before vesting. Check your grant agreement for whether your options are immediately exercisable at grant before vesting, and check the repurchase details...
Yes, but complex issues must be resolved. These matters include the proper treatment under accounting rules for noncorporate entities (FASB's APB No. 25) and tax-basis issues...
If your plan permits this strategy, it makes sense in certain situations...
At pre-IPO and other private companies, boards of directors usually determine exercise prices for stock options. They base them on the stock's fair market value. Methods for valuation include...
Generally, stock options are exercisable when they vest. However...
Valuation of private-company options and stock is more an art than a science. You can ask...
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