وأوضح خيارات الأسهم بدء التشغيل

وأوضح خيارات الأسهم بدء التشغيل

خيارات التداول مجانا
بسيطة نظام التداول إس
تداول ستب فوركس


تد أميريتراد خيارات التجارة تعريف النظام الاقتصادي التجاري الطوعي نظام التداول الاتجاه سبيدوالثبيز الضرائب على خيارات الأسهم في الهند تحويل العملات الأجنبية زفوريكس الصينية

شرح خيارات الأسهم الناشئة. تنويه: أنا لست محاميا ولا محاسب. أنا لا حتى اللعب بها على شاشة التلفزيون. ما قمت به هو بعض البحوث. لقد كنت أيضا في اثنين من الشركات الناشئة حيث كان لي لمعرفة الأوراق. من الواضح، ولكن من فضلك استشارة مستشار مالي أو قانوني مؤهل قبل اتخاذ أي قرار الخيارات المتعلقة الأسهم. إذا كان أي واحد منكم من المهنيين، لا تتردد في ترك لي خط مع أي تصحيحات. لماذا تعطي خيارات الأسهم؟ لأنها مجانية. حسنا، ليس بالضبط مجانا ولكن على مقربة منه. الشركات الناشئة تعطي خيارات الأسهم لمواءمة موظفيها لأهداف المستثمرين. عادة، فإن الشركة لديها تجمع الأسهم، بعد كل جولة من التمويل، لإعطاء للموظفين. هذا التجمع هو ما يقرب من 10-20٪ من إجمالي الأسهم القائمة و دولد خارج اعتمادا على الخدمة، وترتيب ونزوة المجلس. لذلك، خيارات الأسهم هي بيرك أن يحاول جعل الموظف أكثر قليلا مثل أصحاب. أنواع الأسهم. قبل أن نحفر في خيارات الأسهم، يجب علينا مناقشة أنواع الأسهم التي يمكن أن تصدر الشركة. من المهم أن نفهم ذلك لأن ذلك سيحدد المبلغ المخفف بالكامل من الأسهم القائمة، مما يؤثر على ملكية الشركة بشكل عام. أنواع مختلفة هي: المؤسسون الأسهم: هو فئة خاصة من الأسهم التي تصدر فقط مرة واحدة، عند تأسيس الشركة. عادة ما تشتري هذا النوع من الأسهم لأن السعر منخفض (حسب ترتيب سنت)، وهناك مزايا ضريبية (مكاسب رأسمالية طويلة الأجل) للشراء والاحتفاظ بها. الأسهم المفضلة: كما يوحي الاسم، الأسهم المفضلة خاصة. انها عادة ما تكون محفوظة فقط للمستثمرين ولها امتيازات خاصة. وتشمل هذه الامتيازات: الدفع أولا، والأفضليات قبل التحويل إلى المشترك (مثل المضاعفات) وحقوق التصويت. يتم تعيين سعر وشروط الأسهم المفضلة في الجولة (على سبيل المثال، A- جولة، B- جولة). الأسهم المشتركة: إذا لم يكن الأمر مفضل، فمن الشائع. في نهاية المطاف، جميع الأسهم قد تحول إلى المشتركة، اعتمادا على تفضيلات المدرجة في كل جولة. هذا أمر مهم أن يعرف لأنه يحدد إجمالي الأسهم الصادرة وكذلك مقدار المشاركة التي سيكون للمساهمين العاديين في حدث سيولة (على سبيل المثال يجري الشراء أو الذهاب إلى الجمهور). في بعض الحالات، فإن المفضل سوف تأخذ كل المال وترك المساهمين العاديين مع أي شيء. الأسهم المشتركة هي ما هي الخيارات الخاصة بك ل. أنواع الخيارات. هناك نوعان فقط من الخيارات التي سوف تحصل على بدء التشغيل - خيارات الأسهم حافز (إسو) أو خيارات الأسهم غير المؤهلين (نسو). في إرس الكلام، ويسمى إسو خيار قانوني في حين يسمى نسو خيار نونستاتوتوري. خيارات الأسهم الحافزة. لا يمكن إصدار هذا النوع من الخيارات إلا للموظفين. لديهم مزايا ضريبية معينة، وأكبرها هو أن إسو تخضع للضريبة على بيع الأسهم لا ممارسة الخيار. وهذا يعني أنه يمكنك ممارسة الخيارات الخاصة بك وليس لديك ما يدعو للقلق الضرائب حتى كنت فعلا بيع الأسهم. حسنا، ليس بالضبط. كنت بحاجة إلى النظر في البديل الحد الأدنى الضرائب (أمت) مشغلات منذ أن يلعب من قبل مجموعة مختلفة من القواعد (انظر أدناه). بعض القواعد الأخرى التي تتبع إسو هي: يجب منحها بالقيمة العادلة في السوق (فمف) يجب منحها بعد 10 سنوات من موافقة المجلس. يجب أن يمارس بعد 10 سنوات من تاريخ المنح. خيارات الأسهم غير المؤهلين. جميع الخيارات الأخرى، عند بدء التشغيل، هي عادة مكاتب الإحصاء الوطنية. هناك شيء يسمى مذكرة، ولكن تلك عادة ما تكون مخصصة للمستثمرين من الخارج، لذلك نحن لن تتعامل مع ذلك هنا. وتعتبر المكاتب الإحصائية الوطنية أكثر مرونة من المعايير الدولية للتوحيد القياسي (إسو) ولكنها لا تتمتع بنفس المزايا الضريبية. والشيء الرئيسي في المكاتب الإحصائية الوطنية هو أنها تخضع للضريبة عند ممارسة الخيار. وھذا یعني أنھم یخضعون للضرائب علی مستویات ضریبة الدخل العادیة ولا تحصل علی مکاسب أرباح رأس المال علی المدى الطویل. تتمتع مكاتب الإحصاء الوطنية بالمرونة من حيث: يمكن أن تعطى لأي شخص. يمكن أن يكون سعرها، أعلى أو أقل من سعر السوق الحالي، لذلك لا توجد مشاكل مع فمف. من المهم أن تفهم أي نوع من الخيارات لديك. الآثار الضريبية حقيقية وشديدة إذا كنت تفعل الشيء الخطأ. فمن الأفضل أن تستشير مستشار الضرائب المهنية على أفضل مسار عملك. خيار التسعير. يتم تسعير خيارات إسو من خلال عملية معقدة معروفة في التجارة باعتبارها 409A. ونحن لن ندخل في التفاصيل منذ انها معقدة وبالنسبة لبدء التشغيل، من الصعب حساب. الشيء الذي يجب أن نأخذ في الاعتبار حول تسعير الخيارات هو أنه سيكون أقل من سعر الجولة المفضل حاليا. كما تقترب الشركة من حدث السيولة، فإن سعر الخيار تتلاقى مع سعر الجولة. العقلانية لهذا بسيط. في وقت مبكر في حياة الشركات الناشئة، والمخاطر مرتفعة. لا يمكن ممارسة الخيارات، لذلك يجب أن تستند القيمة إلى القيمة المستقبلية للشركة التي قد لا تكون حول عندما يمكن ممارسة الخيار. كل هذا يعني أن الخيارات المبكرة تستحق أقل لأنها أكثر خطورة. ومع تزايد احتمالية حدوث حدث سيولة أكبر، تصبح الخيارات أقل خطورة - وبالتالي تستحق المزيد. خيارات الأسهم سترة مع مرور الوقت. وعادة ما تكون الخيارات على مدى أربع سنوات مع جرف سنة واحدة. الجرف سنة واحدة يعني أنك لا تحصل على أي من الخيارات المكتسبة حتى سنة بعد تاريخ المنحة. عند هذه النقطة، كنت 25٪ من الخيارات سترة. بعد ذلك، جدول الاستحقاق هو 1/48 في الشهر لمدة 4 سنوات جدول الاستحقاق. يمكن أن يكون هناك مشغلات الاستحقاق لبعض الأحداث. هذه كلها تصل إلى الشركة ومجلس الإدارة. وقد يكون منوذج االستحقاق النموذجي تغيري يف السيطرة أو فقدان امللكية. وفي هذه الحالات، يمكن أن تستفيد جميع الخيارات على الفور. ذلك يعتمد حقا على متن الطائرة. وليس من المألوف أن تكون هناك خيارات مكتسبة بالكامل (أي 100٪ من المنحة في تاريخ المنح) كمكافأة. القسم 83 باء. وقسم مصلحة الضرائب 83B هو انتخاب يسمح للموظفين بتغيير كيفية فرض ضرائب على خيارات الأسهم المقيدة. عادة ما يأتي المخزون المقيد في فئتين: المؤسسون الأسهم: عندما تأسست شركة، قيمة السوق العادلة (فمف) من الصعب حقا لتحديد ومنخفضة إلى حد ما. إن أسهم المؤسسين مقيدة و "تمنح" أو تعطى على الفور (على سبيل المثال لا يوجد جدول للاستحقاق). وهذا يعني أنه بدون إجراء انتخابات 83B، سوف تدفع أمت حيث ارتفع سعر السهم في كل جولة. لذلك، يجب على جميع المؤسسين شراء أسهمهم وتقديم الانتخابات 83B. وهذا يضمن المعاملة الضريبية الأكثر ملاءمة (لأنه يبدأ على المدى الطويل الأرباح الرأسمالية على مدار الساعة) ويزيل أي قضايا أمت. الجانب السلبي هو أنه يمكنك أن تكون خارج تكلفة السهم (وهو على الأرجح منخفضة) إذا فشلت الشركة. ممارسة الخيار المبكر: تسمح لك بعض خطط الخيارات بممارسة خياراتك قبل استحقاقها. هذا النوع من التمارين يجب أن يحدث في غضون 30 يوما. الميزة الضريبية هي أنه يبدأ ساعة رأس المال على المدى الطويل في حين سترات الأسهم. انظر، هذا هو كيندا صعبة. عليك حقا أن تقرأ أن منح الأوراق بعناية لفهم كيفية احتساب الضرائب. ومن المقبول تماما أن نسأل كفو لشرح هذا لك أو أن يكون لهم يوصي المهنية. الحسابات الضريبية. الضرائب معقدة. ولجعله أكثر تعقيدا، يوجد لدى مصلحة الضرائب في الواقع نظامان ضريبيان. نعم. نظامان ضريبيان مختلفان لهما قواعد مختلفة تماما. ممارسة خيارات الأسهم سيكون لها آثار ضريبية لكل نظام. ضريبة الدخل القياسية. معظم الناس يستخدمون لهذا النظام لأننا جميعا ندفع الضرائب. ویمکن فرض ضرائب علی الخیارات بطریقتین في ھذا النظام: کأرباح رأسمالیة قصیرة الأجل (مثل الدخل العادي) أو مکاسب رأسمالیة طویلة الأجل (بمعدل مخفض). هذه المعدلات تختلف في كل وقت، لذلك فمن الأفضل للبحث عن معدل الأرباح الرأسمالية على المدى الطويل وكيفية ارتباطها بالخيارات. حتى كتابة هذه السطور، تكون معايير المكاسب الرأسمالية طويلة الأجل 2 سنة من تاريخ المنح وبعد سنة من تاريخ الممارسة. معدل الأرباح الرأسمالية على المدى الطويل يتراوح بين 5٪ أو 15٪، حسب الفئة الضريبية. ضريبة الحد الأدنى البديلة (أمت) أصبح أمت مشكلة مع خيارات إسو بسبب القدرة على عقد دون الحدث الخاضع للضريبة. تذكر أنه يتم فرض ضريبة على الأيزو عند بيع الأسهم وليس عند ممارسة الخيارات. يتم فرض ضريبة على مكتب الإحصاء الوطني عند ممارسة الخيارات، لذلك يتم فرض ضريبة على معدل ضريبة الدخل العادية. نضع في اعتبارنا أنه إذا كنت تمارس وبيع إسو في نفس العام، أمت ليست قضية لأنها تنظر في أرباح رأس المال على المدى القصير والضرائب على معدل ضريبة الدخل العادي الخاص بك. إسو لديها عيب كبير للموظف في أن الفرق بين الشراء وسعر المنحة تخضع أمت. وبالنسبة للدخول الخاضعة للضريبة التي تصل إلى 175،000 دولار أو أقل، فإن معدل أمت هو 26٪. أكثر من 175،000 $، انها 28٪. إذا كان معدل أمت هو أكثر من معدل الضريبة العادية، ثم تدفع أمت وليس معدل الضريبة العادية. وهناك أيضا شيء يسمى الحد الأدنى للائتمان الضريبي (متس)، وهو الفرق بين المبلغ أمت والمبلغ الضريبي العادي الخاص بك (إذا أمت هو أعلى). ويمكن بعد ذلك استخلاص هذا متس في السنوات اللاحقة. أنا متأكد من الآن عقلك يضر من كل هذا. لي ايضا. الشيء أن يسلب من كل شيء أمت هو أن نعرف أنه موجود والتحدث إلى المحاسب الخاص بك. بعض الأمثلة. دعونا نلقي نظرة على بعض الأمثلة لنرى كيف يعمل هذا الاشياء. المثال 1: خيارات نسو. تلقت جين 5000 من خيارات نسو عند 1.00 دولار من شركة ووندرفول كومباني. جدول الاستحقاق هو 4 سنوات مع جرف سنة واحدة. لقد مرت عامين منذ تاريخ المنحة وتريد جين الآن ممارسة بعض الخيارات. سعر السهم الحالي هو 2.50 $. لذلك، الرياضيات تبدو مثل هذا: إجمالي الخيارات: 5،000. الخيار السعر: 1.00 $. خيارات القيمة: 1000 دولار (في غرانت) الخيارات المكتسبة بعد سنتين: 2500 (24/48 أو 1/2) الخيار المكتسب يستحق: 2،500 * 2.50 = 6،250 $. وبمجرد أن تمارس جين خياراتها في مكتب الإحصاء الوطني، فإنها ستدين بضرائب دخل منتظمة (مكاسب رأسمالية قصيرة الأجل) على الانتشار، والتي ستكون 2.50 دولار و # 8211؛ $ 1.00 = 1.50 دولار للسهم الواحد أو. $ 6،250 (قيمة التمرين) & # 8211؛ $ 2،500 (سعر الخيار) = $ 3،750 الدخل الخاضع للضريبة. الآن، إذا كانت تملك السهم، حتى بالنسبة للإطار الزمني المكاسب الرأسمالية على المدى الطويل، وقالت انها لا تزال تدين الضرائب على 3،750 $. لذا، من المهم بيع بعض الخيارات لتغطية الضرائب التي تدين بها حتى إذا كنت تعتقد أن السهم سوف يرتفع لاحقا. مثال 2: خيارات إسو. تلقى جيم 10،000 خيارات إسو في 0.25 $ من شركة اوبر كول. جدول الاستحقاق هو 4 سنوات مع جرف سنة واحدة. لقد مضى 1.5 عاما على تاريخ المنحة، والآن يريد جيم ممارسة بعض الخيارات. سعر السهم الحالي هو $ 9.50. يبدو الرياضيات جيم مثل هذا: إجمالي الخيارات: 10000. الخيار السعر: 0،25 $. أوبتيونس فالو: $ 2،500 (أت غرانت) خيارات مكتسبة بعد 1.5 سنة: 3،750 (18/48 أو 3/8) الخيار المكتسب يستحق: 35،625 دولار. جيم يمارس له خيارات إسو المكتسبة. وفي هذه المرحلة، لا يدين بأي ضرائب دخل منتظمة، ولكن الفرق (9.50 دولار أمريكي و 8211 دولار أمريكي = 0.25 دولار أمريكي = 9.25 * 3.750 دولار أمريكي = 34687.50 دولار أمريكي) بين المنحة وسعر التمرين يخضع ل أمت. لذلك، جيم يحتاج إلى التحدث مع محاسبه لمعرفة ما اذا كان سيؤدي بسبب أمت. إذا كان جيم يحمل أسهمه لأكثر من عام بعد أن يمارس ذلك، ثم انه سوف مدينون مكاسب رأس المال على المدى الطويل عندما يبيعها. تعقيد النظام الضريبي يجعل من الصعب فهم ما قد مدينون عند خيارات التمارين. الزوج الذي مع الطبيعة المتغيرة للنظام الضريبي لدينا ويمكنك أن ترى لماذا 1) أنا لست محاسب و 2) لماذا يحصلون على أموال كثيرا. من الأفضل دائما البحث عن مساعدة احترافية عند محاولة فرز ذلك. ما يجب عليك القيام به هو أن تصبح مألوفة مع الشروط حتى تتمكن من طرح الأسئلة. فيما يلي ملخص بالأشياء التي يجب أن تكون على دراية بها أو: نوع الخيار: إسو (الموظفين فقط) أو نسو (أي شخص آخر) لا تخضع إسو للضريبة في ممارسة ولكن عند البيع. أنه لا يكون هذا الزناد أمت سيئة. وتخضع المنظمات الإحصائية الوطنية للضريبة في الوقت الذي تمارس فيه. جداول الصمود عادة 4 سنوات مع جرف 1 سنة. أمت الخاصة بك مشغلات إيسوس (التحدث إلى محاسب) يمارس الخيار فترة عقد. هل تتأهل خياراتك لإجراء انتخابات القسم 83B من مصلحة الضرائب الأمريكية؟ المراجع. خطة خيار الأسهم المادة. مقالة مفصلة عن خيارات الأسهم إسو / نسو من بلوق ديفيد نافزيجر. منشور إرس 525 المتعلق بالإيرادات الخاضعة للضريبة وغير الخاضعة للضريبة. شرح جيد عن الانتخابات 83 ب. المادة ممتازة على أمت وخيارات الأسهم. مقالات ذات صلة: تذييل المشاركة الذي تم إنشاؤه تلقائيا من خلال إضافة إضافة تذييل المشاركة ل وردبريس. التعليقات مغلقة. [& # 8230؛] تم ذكر هذه المشاركة على تويتر من قبل إدارة الأعمال اليومية، تمويل المعاملات. تمويل الصفقة قال: خيارات الأسهم الناشئة شرح | ماجستير في إدارة الأعمال اليومية ow.ly/16bLo4 [& # 8230؛] التعليقات والتحليلات الاجتماعية لهذه المشاركة & # 8230؛ إذا كنت ترغب في الحصول على الأغنياء في بدء التشغيل، وكنت أفضل طرح هذه الأسئلة قبل قبول الوظيفة. ممتاز في جميع أنحاء بعد أعلن يكست جولة كبيرة 27 مليون $ من التمويل. ولكن هؤلاء الموظفين ربما لا يكون لديهم فكرة عما يعنيه ذلك لخيارات الأسهم الخاصة بهم. دانيال غودمان عبر بوسينيس إنزيدر. عندما بدأت أول شركة بريان غولدبيرغ، بليتشر ريبورت، بيعها لأكثر من 200 مليون دولار، كان الموظفون الذين لديهم خيارات الأسهم يتفاعلون بإحدى طريقتين: "كان رد فعل بعض الناس مثل:" يا إلهي، هذا هو أكثر [المال] مما كان لي أن أتخيله من أي وقت مضى "، وقال غولدبرغ سابقا لرجال الأعمال من الداخل في مقابلة حول بيع. "كان بعض الناس مثل،" هذا كل شيء!! " أنت لم تعرف أبدا ما كان عليه. " إذا كنت موظفا في شركة ناشئة - وليس مؤسسا أو مستثمرا - وتقدم شركتك لك مخزون، فمن المحتمل أن ينتهي بك المطاف إلى "الأسهم العادية" أو الخيارات على الأسهم العادية. الأسهم المشتركة يمكن أن تجعلك غنيا إذا كانت شركتك يذهب العامة أو يحصل اشترى بسعر السهم الذي هو أعلى بكثير من سعر الإضراب من الخيارات الخاصة بك. ولكن معظم الموظفين لا يدركون أن أصحاب الأسهم المشتركة لا يحصلون إلا على رواتبهم من وعاء المال المتبقي بعد أن يأخذ أصحاب الأسهم المفضلون قصتهم. وفي بعض الحالات، يمكن لأصحاب الأسهم المشتركة أن يجدوا أن المساهمين المفضلين قد منحوا مثل هذه الشروط الجيدة أن الأسهم العادية لا قيمة لها تقريبا، حتى لو تم بيع الشركة للحصول على المزيد من المال من المستثمرين وضعها في ذلك. إذا كنت تسأل بعض الأسئلة الذكية قبل قبول عرض، وبعد كل جولة ذات مغزى من الاستثمارات الجديدة، لا يجب أن يفاجأ بقيمة - أو عدم وجود - من خيارات الأسهم الخاصة بك عند مخارج بدء التشغيل. لقد طلبنا من رأس المال الاستثماري النشط لمدينة نيويورك، الذي يجلس في مجلس إدارة عدد من الشركات الناشئة ويقوم بانتظام بصياغة أوراق المدى، ما الأسئلة التي يجب على الموظفين طرحها على أصحاب عملهم. طلب المستثمر عدم الكشف عن اسمه ولكن كان سعيدا للمشاركة في مغرفة داخل. إليك ما يسأله الأشخاص الذكيون عن خيارات الأسهم: 1. اسأل كم من الأسهم التي يتم تقديمها على أساس المخفف تماما. يقول الرأسمالي المغامر: "في بعض الأحيان ستخبرك الشركات فقط بعدد الأسهم [التي تحصل عليها]، وهذا أمر لا معنى له تماما لأن الشركة يمكن أن تمتلك مليار سهم". "إذا قلت فقط،" سوف تحصل على 10،000 سهم، "يبدو وكأنه الكثير، ولكن قد يكون في الواقع كمية صغيرة جدا." بدلا من ذلك، اسأل ما هي النسبة المئوية للشركة التي تمثلها خيارات الأسهم هذه. إذا كنت تسأل عن ذلك على أساس "المخفف تماما"، وهذا يعني أن صاحب العمل سوف تضطر إلى أن تأخذ في الاعتبار جميع الأسهم الشركة ملزمة لإصدار في المستقبل، وليس فقط الأسهم التي تم تسليمها بالفعل. كما يأخذ في الاعتبار تجمع الخيار بأكمله. تجمع الخيار هو الأسهم التي يتم تخصيصها لتحفيز الموظفين بدء التشغيل. وهناك طريقة أبسط لطرح نفس السؤال: "ما هي النسبة المئوية للشركة التي تمثلها أسهمي فعلا؟" 2. اسأل كم من الوقت "تجمع الخيار" الشركة سوف تستمر، وكم من النقد الشركة من المرجح أن ترتفع، حتى تعرف ما إذا ومتى قد تحصل على ملكيتك. وفي كل مرة تصدر فيها الشركة مخزونات جديدة، يحصل المساهمين الحاليين على "مخففة"، مما يعني أن النسبة المئوية للشركة التي يملكونها تنخفض. على مدى سنوات عديدة، مع العديد من التمويل الجديد، ونسبة الملكية التي بدأت كبيرة يمكن أن تضعف إلى حصة صغيرة نسبة (على الرغم من أن قيمتها قد تكون قد زادت). إذا كان من المرجح أن تحتاج الشركة التي تنضم إليها إلى جمع المزيد من المال على مدى السنوات القليلة المقبلة، لذلك، يجب أن نفترض أن حصتك سوف تضعف إلى حد كبير مع مرور الوقت. كما تقوم بعض الشركات بزيادة أحواض خياراتها على أساس سنوي، مما يضعف أيضا المساهمين الحاليين. البعض الآخر جانبا بركة كبيرة بما يكفي لاستمرار بضع سنوات. يمكن إنشاء برك الخيار قبل أو بعد الحصول على ضخ الاستثمار في الشركة. فريد ويلسون من ونيون سكوير فينتوريس يحب أن يسأل عن صناديق ما قبل المال (ما قبل الاستثمار) تجمع التي هي كبيرة بما يكفي ل "تمويل احتياجات التوظيف والاحتفاظ للشركة حتى التمويل المقبل". وأوضح المستثمر الذي تحدثنا عنه كيف يتم إنشاء صناديق الخيار من قبل المستثمرين ورجال الأعمال معا: "الفكرة هي، إذا كنت ذاهب للاستثمار في الشركة الخاصة بك، ثم نتفق على حد سواء:" إذا كنا ذاهبون للوصول من هنا إلى هناك، سوف نضطر إلى توظيف هذا العدد الكبير من الناس، لذلك دعونا نضع ميزانية رأس المال، وأعتقد أنني سأضطر إلى التخلي عن 10٪ و 15٪ من الشركة [للوصول إلى هناك]. هذا هو الخيار تجمع. " 3. بعد ذلك، يجب أن تعرف كم من المال قد أثارت الشركة وعلى أي شروط. عندما ترفع الشركة ملايين الدولارات، يبدو باردا حقا. ولكن هذا ليس المال مجانا، وغالبا ما يأتي مع الظروف التي يمكن أن تؤثر على خيارات الأسهم الخاصة بك. "إذا كنت موظفا الانضمام إلى شركة، ما أريد أن أسمع هو أنك لم تثير الكثير من المال وانها" على التوالي يفضل [الأسهم]، "ويقول المستثمر. النوع الأكثر شيوعا من الاستثمار يأتي في شكل الأسهم المفضلة، وهو أمر جيد لكل من الموظفين ورجال الأعمال. ولكن هناك نكهات مختلفة من الأسهم المفضلة. وستعتمد القيمة النهائية لخيارات الأسهم على النوع الذي أصدرته شركتك. وفيما يلي الأنواع الأكثر شيوعا من الأسهم المفضلة. يفضل على التوالي - في المخرج، يحصل أصحاب الأسهم المفضلة على رواتبهم قبل أن يحصل أصحاب الأسهم العادية (الموظفين) على سنت واحد. النقد للمفضل يذهب مباشرة إلى جيوب رأس المال الاستثماري. المستثمر يعطي لنا مثالا على ذلك: "إذا استثمرت 7 ملايين دولار في شركتك، وكنت تبيع 10 مليون دولار، أول 7 ملايين دولار للخروج يذهب إلى المفضلة والباقي يذهب إلى الأسهم المشتركة.إذا كانت الشركة الناشئة تبيع أي شيء أكثر من سعر التحويل (عموما تقييم ما بعد البيع للجولة) وهذا يعني أن المساهم المفضل على التوالي سيحصل على أي نسبة من الشركة التي يمتلكونها ". المشارکة المفضلة - یفضل المشارکة بمجموعة من المصطلحات التي تزید من مبلغ المالکي المفضلین الذین سیحصلون علی کل حصة في حدث التصفیة. الأسهم المفضلة المشاركة تضع أرباحا على الأسهم المفضلة، مما ينسخ الأسهم المشتركة عند الخروج من بدء التشغيل. ويفضل المستثمرون الذين يشاركون في المشاركة الحصول على أموالهم خلال فترة التصفية (تماما مثل أصحاب الأسهم المفضلين)، بالإضافة إلى توزيعات أرباح محددة سلفا. وعادة ما يتم تقديم الأسهم المفضلة المشاركة عندما لا يعتقد المستثمر أن الشركة تستحق بقدر ما يعتقد المؤسسون أنها - حتى أنها توافق على الاستثمار من أجل تحدي الشركة لتنمو كبيرة بما فيه الكفاية لتبرير وكسوف ظروف المشاركة المفضل أصحاب الصدمات. وخلاصة القول مع المشاركة المفضلة هي أنه بمجرد دفع أصحاب الأسهم المفضلين، سيكون هناك أقل من سعر الشراء المتبقي للمساهمين العاديين (أي أنت). تفضيل التصفية متعددة - هذا هو نوع آخر من المصطلحات التي يمكن أن تساعد أصحاب المفضلة وأصحاب المسمار المشترك الأسهم. على عكس الأسهم المفضلة على التوالي، والتي تدفع نفس سعر السهم كالمخزون العادي في معاملة أعلى من السعر الذي صدر المفضل، وتفضيل التصفية متعددة يضمن أن أصحاب المفضلة سوف تحصل على عائد على استثماراتهم. لاستخدام المثال الأولي، بدلا من المستثمر 7 مليون $ استثمرت يعود لهم في حالة بيع، فإن تفضيل التصفية 3X أن وعد أصحاب المفضلة الحصول على أول 21 مليون $ من بيع. إذا باعت الشركة 25 مليون دولار، وبعبارة أخرى، فإن أصحاب المفضلين سيحصلون على 21 مليون دولار، وسيتعين على المساهمين العاديين تقسيم 4 ملايين دولار. إن تفضيل التصفية المتعدد ليس شائعا جدا، ما لم يكافح أحد الشركات الناشئة ويطالب المستثمرون بعلاوة أكبر على المخاطر التي يتعرضون لها. ويقدر مستثمرنا أن 70٪ من الشركات الناشئة المدعومة بالمخزون لديها مخزون مفضل على التوالي، في حين أن نحو 30٪ لديها بنية على الأسهم المفضلة. صناديق التحوط، وهذا الشخص يقول، في كثير من الأحيان ترغب في تقديم تقييمات كبيرة للمشاركة الأسهم المفضلة. ما لم يكنوا واثقين بشكل استثنائي في أعمالهم، يجب على رجال الأعمال الحذر من وعود مثل "أريد فقط المشاركة المفضلة وأنها سوف تختفي في تصفية 3X، ولكن أنا سوف تستثمر في تقييم مليار دولار". في هذا السيناريو، من الواضح أن المستثمرين يعتقدون أن الشركة لن تصل إلى هذا التقييم - في هذه الحالة أنها تحصل على 3X أموالهم، ويمكن أن يمسح أصحاب الأسهم المشتركة. 4 - ما هي قيمة الدين، إن وجدت، التي رفعتها الشركة؟ الدين يمكن أن يأتي في شكل دين المشروع أو مذكرة قابلة للتحويل. من المهم أن يعرف الموظفون مقدار الدين الموجود في الشركة، لأن هذا سيحتاج إلى أن يدفع للمستثمرين قبل أن يرى الموظف فلسا واحدا من المخرج. كل من الدين والملاحظة القابلة للتحويل شائعة في الشركات التي تقوم بشكل جيد للغاية، أو هي المضطربة للغاية. كلاهما يسمح رجال الأعمال لإيقاف التسعير شركتهم حتى شركاتهم لديها أعلى التقييمات. وفيما يلي الأحداث الشائعة والتعاريف: الدين - هذا قرض من المستثمرين ويتعين على الشركة تسديده. ويقول المستثمر: "أحيانا تقوم الشركات برفع كمية صغيرة من ديون المشاريع، والتي يمكن استخدامها لكثير من الأغراض، ولكن الغرض الأكثر شيوعا هو توسيع مدارجها حتى يتمكنوا من الحصول على تقييم أعلى في الجولة المقبلة". ملاحظة قابلة للتحويل - هذا هو الدين الذي تم تصميمه لتحويله إلى حقوق ملكية في تاريخ لاحق وارتفاع سعر السهم. إذا أثارت شركة ناشئة كلا من الدين والمذكرة القابلة للتحويل، قد يكون هناك حاجة إلى إجراء مناقشة بين المستثمرين والمؤسسين لتحديد ما الذي يحصل على دفعه أولا في حالة الخروج. 5. إذا كانت الشركة قد رفعت مجموعة من الديون، يجب أن تسأل كيف تعمل شروط الدفع في حالة البيع. إذا كنت في الشركة التي أثارت الكثير من المال، وأنت تعرف شروط هي شيء آخر من الأسهم المفضلة على التوالي، يجب أن تسأل هذا السؤال. يجب عليك أن تسأل بالضبط ما سعر البيع (أو التقييم) خيارات الأسهم الخاصة بك تبدأ يجري "في المال"، مع الأخذ في الاعتبار أن الديون، سندات قابلة للتحويل، وهيكل على رأس الأسهم المفضلة سوف تؤثر على هذا السعر. مدونة ماكس ششيريسون. أفكار حول التكنولوجيا والأعمال التجارية التكنولوجيا. وأوضح خيارات الأسهم بدء التشغيل. خيارات الأسهم هي جزء كبير من حلم بدء التشغيل ولكن غالبا ما تكون غير مفهومة جيدا، حتى من قبل كبار التنفيذيين الذين يستمدون الكثير من دخلهم من الخيارات الأسهم. هنا & # 8217؛ s محاولتي لشرح القضايا الرئيسية الموظفين يجب أن يكون على بينة من. & # 8220؛ خيارات الأسهم & # 8221؛ كما تمنح عادة تمنحك الحق في شراء أسهم الأسهم في المستقبل بسعر يحدد اليوم. سعر الإضراب & # 8220؛ & # 8221؛ هو السعر الذي يمكنك شراء أسهم في المستقبل. إذا كان السهم في المستقبل يستحق أكثر من سعر الإضراب، يمكنك كسب المال عن طريق & # 8220؛ ممارسة & # 8221؛ الخيارات وشراء حصة من الأسهم لسعر الإضراب. على سبيل المثال، يتم منحك 5000 سهم من الأسهم بسعر 4 دولار للسهم الواحد في شركة ناشئة. بعد 5 سنوات، الأسهم يذهب العامة وثلاث سنوات بعد ذلك أنه & # 8217؛ ق تصل إلى 200 $ للسهم الواحد. يمكنك ممارسة الخيار، ودفع 20،000 $ لشراء 5،000 سهم من الأسهم التي تبلغ قيمتها 1،000،000 $. تهانينا، لقد حققت ربحا قبل الضريبة قدره 980،000 دولار أمريكي، بافتراض أنك تبيع الأسهم على الفور. هناك مصيدة صغيرة ولكنها ضرورية: عندما يتم منحك خياراتك، فهي ليست & # 8220؛ مكتسبة & # 8221 ؛. وهذا يعني أنه إذا تركت الشركة الأسبوع بعد انضمامك، تفقد خيارات الأسهم الخاصة بك. هذا يبدو منطقيا؛ وإلا بدلا من أن يكون حافزا للبقاء، فإنها تكون حافزا على العمل هوب قدر الإمكان، وجمع الخيارات من أكبر عدد ممكن من أرباب العمل ما تستطيع. لذلك، كم من الوقت لديك للبقاء للحفاظ على الخيارات الخاصة بك؟ في معظم الشركات، فإنها ستستمر على مدى أربع سنوات. الهيكل الأكثر شيوعا هو & # 8220؛ جرف & # 8221؛ بعد سنة واحدة عندما تستحوذ على 25٪ من أسهمك، وتستحق األسهم المتبقية على أساس تناسبي على أساس شهري حتى تصل إلى أربع سنوات. التفاصيل تختلف من شركة إلى أخرى. بعض الشركات على خيارات أكثر من 5 سنوات وبعض على مدى فترات أخرى من الزمن، وليس كل أصحاب العمل لديهم الهاوية. الجرف هناك لحماية الشركة & # 8211؛ وجميع المساهمين، بما في ذلك الموظفين الآخرين & # 8211؛ من الاضطرار إلى إعطاء أسهم للأفراد الذين ملاذ 'ر قدمت مساهمات ذات مغزى للشركة. لماذا يجب أن تهتم ما إذا كان هذا الرجل الذي حصل على النار بعد ستة أشهر مشى بعيدا مع أي خيارات أم لا؟ لأن هذه الخيارات & # 8220؛ تمييع & # 8221؛ ملكيتك للشركة. تذكر أن كل سهم يمثل قطعة ملكية للشركة. وكلما زاد عدد الأسهم هناك، انخفضت القيمة التي يمثلها كل واحد منها. دعونا نقول عند الانضمام إلى بدء التشغيل والحصول على 5000 سهم، وهناك 25،000،000 مجموع الأسهم القائمة. أنت تملك .02٪ & # 8211؛ نقطتان أساسيتان & # 8211؛ الشركة. إذا قامت الشركة بإصدار 25.000.000 خيارات أو أسهم أخرى على مدى السنوات الخمس التي تخلل ذلك، فهناك 50.000.000 سهم في الاكتتاب العام (عادة إما كجزء من جمع الأموال بما في ذلك الاكتتاب العام أو توظيف الموظفين)، أنت تركت مع .01٪ & # 8211؛ نقطة أساس أو نصف النسبة المئوية الأصلية. كان لديك 50٪ التخفيف. يمكنك الآن جعل نصف بنفس القيمة لنفس الشركة. ومع ذلك، التخفيف ليس بالضرورة سيئة. والسبب في موافقة المجلس على أي معاملة مخففة (جمع الأموال، وشراء شركة، وإعطاء خيارات الأسهم) هو أنها تعتقد أنها سوف تجعل أسهم أكثر من قيمتها. إذا كانت شركتك تثير الكثير من المال، قد تمتلك نسبة مئوية أصغر، ولكن الأمل هو أن وجود هذا النقد يسمح للشركة لتنفيذ استراتيجية مما يعزز قيمة المؤسسة بما يكفي لأكثر من تعويض عن التخفيف و سعر السهم ترتفع. وبالنسبة للمعاملة المعينة (التي ترفع 10 ملايين دولار)، كلما كان ذلك أقل تخفيفا، إلا أن رفع مبلغ 15 مليون دولار قد يكون أقل تخفيفا من زيادة 10 ملايين دولار مع زيادة قيمة كل حصة قائمة. هذا يقودنا إلى العدد الذي هو أكثر أهمية بكثير (على الرغم من أنه هو السبر أقل إثارة للإعجاب) من عدد الأسهم & # 8211؛ ما هو جزء من الشركة التي تملكها. وغالبا ما يقاس هذا من حيث النسبة المئوية، والتي أعتقد أنها مؤسفة لأن عدد قليل جدا من الموظفين غير المؤسسين ينتهي بنسبة واحد في المئة أو حتى نصف في المئة، لذلك أنت & # 8217؛ وغالبا ما نتحدث عن الكسور الصغيرة، التي هي مزعجة. أعتقد أنه من المفيد قياسه في & # 8220؛ نقطة أساس & # 8221؛ & # 8211؛ مئة في المئة. بغض النظر عن الوحدات، وهذا هو الرقم الذي يهم. لماذا ا؟ دعونا نقول الشركة A وشركة B على حد سواء، بعد الكثير من العمل الشاق، بقيمة 10 مليار $ (على غرار ريد هات، على سبيل المثال). منذ فترة طويلة ذهب ألبرت للعمل في الشركة A وذهب بوب للعمل في شركة B. ألبرت بخيبة أمل أنه حصل فقط على 5000 الخيارات، وتم منحها بسعر 4 $ لكل منهما. كان بوب سعيدا جدا & # 8211؛ حصل على 50.000 خيار بسعر 20 سنتا فقط. من حصل عل الصفقة الأفضل؟ هذا يعتمد. دعونا نقول الشركة لديها 25،000،000 سهم القائمة، وكانت الشركة B 500،000،000 سهم القائمة. بعد سنوات عديدة و 50٪ تخفيف في كل حالة، الشركة لديها 50،000،000 سهم القائمة حتى أنها تستحق 200 $ لكل و حققت ألبرت ربحا من 980،000 $ على خياراته ($ 1 مليون قيمة ناقص 20000 $ تكلفة التمرين). الشركة B لديها 1 مليار سهم القائمة، لذلك هم يستحقون 10 $ لكل منهما. بوب & # 8217؛ ق صافي له أرباحا من 9.80 $ لكل منهما، لربح إجمالي قدره 490،000 $. لذلك في حين كان بوب لديه المزيد من الخيارات بسعر الإضراب أقل، وقال انه جعل أقل من المال عندما حققت شركته نفس النتيجة. ويصبح ذلك واضحا عند النظر إلى نسبة الملكية. كان ألبرت 2 نقطة أساس، وكان بوب واحد. على الرغم من أنه كان أقل من الأسهم، وكان ألبرت المزيد من الأسهم في الطريقة الوحيدة التي تهم. كم عدد الأسهم المعلقة & # 8220؛ العادية & # 8221 ؛؟ على مستوى ما عدد هو التعسفي تماما، ولكن العديد من الشركات الممولة فك يميلون إلى البقاء في نطاق مماثل الذي يختلف على أساس المرحلة. كما تذهب الشركة من خلال المزيد من جولات التمويل ويستأجر المزيد من الموظفين، فإنه سيتميل إلى إصدار المزيد من الأسهم. A & # 8220؛ نورمال & # 8221؛ مرحلة مبكرة قد يكون بدء 25-50 مليون سهم المعلقة. قد يكون متوسط ​​المرحلة العادية (إيرادات كبيرة وجولات تمويل متعددة، والكثير من الموظفين مع فريق إيكسيك الكامل في مكان) 50-100 مليون سهم القائمة. الشركات المرحلة المتأخرة التي هي على استعداد للاكتتاب العام غالبا ما يكون أكثر من 100 مليون سهم القائمة. في النهاية، العدد الفعلي لا يهم، ما يهم هو العدد الإجمالي بالنسبة لحجم المنحة. تحدثت بإيجاز عن ممارسة الخيارات أعلاه. من الأمور المهمة التي يجب مراعاتها أن ممارسة خياراتك تكلف المال. اعتمادا على سعر الإضراب وعدد الخيارات لديك، قد يكلف قليلا من المال. في العديد من الشركات العامة، يمكنك إجراء & # 8220؛ ممارسة غير نقدية & # 8221؛ أو & # 8220؛ نفس اليوم للبيع & # 8221؛ حيث يمكنك ممارسة وبيع في معاملة واحدة وأنها ترسل لك الفرق. في معظم الشركات الخاصة، ليس هناك طريقة بسيطة للقيام ما يعادلها. تسمح لك بعض الشركات الخاصة بتسليم بعض الأسهم التي حصلت عليها فقط في الشركة على & نبسب؛ & # 8220؛ القيمة السوقية العادلة & # 8221 ؛؛ قراءة خيارات الخيارات الخاصة بك لمعرفة ما إذا كان يتم تقديم هذا. I & # 8217؛ سوف نتحدث أكثر عن & # 8220؛ القيمة السوقية العادلة & # 8221؛ أدناه، ولكن الآن أنا & # 8217؛ ليرة لبنانية أقول فقط أنه في حين لها عظيم أن يكون هذا الخيار، فإنه هو & # 8217؛ ر دائما أفضل صفقة إذا كان لديك أي بديل. والشيء المهم الآخر الذي يجب مراعاته في ممارسة خيارات الأسهم هو الضرائب التي سأناقشها لاحقا. في رأيي، العملية التي يتم بموجبها & # 8220؛ القيمة السوقية العادلة & # 8221؛ من الأسهم الناشئة يتم تحديدها في كثير من الأحيان تنتج التقييمات التي سيكون من الصعب جدا العثور على البائع وسهلة جدا للعثور على المشترين & # 8211؛ وبعبارة أخرى قيمة غالبا ما تكون أقل قليلا من معظم الناس & # 8217؛ s بديهية تعريف القيمة السوقية. مصطلح & # 8220؛ القيمة السوقية العادلة & # 8221؛ في هذا السياق معنى محدد جدا لمصلحة الضرائب، وعليك أن تدرك أن هذا المعنى التقني قد لا يتوافق مع السعر الذي سيكون فكرة جيدة لبيع الأسهم الخاصة بك. لماذا تشارك مصلحة الضرائب وما يجري؟ يخضع إصدار خيار الأسهم جزئيا للقسم 409 أ من قانون الإيرادات الداخلي الذي يغطي & # 8220؛ التعويض المؤجل غير المؤهل & # 8221؛ & # 8211؛ يحصل العاملون على تعويضات في سنة واحدة تدفع في السنة المقبلة، بخلاف المساهمات في & # 8220؛ الخطط المؤهلة & # 8221؛ مثل 401 (ك) الخطط. خيارات الأسهم تمثل تحديا في تحديد متى & # 8220؛ التعويض & # 8221؛ هو & # 8220؛ مدفوع & # 8221 ؛. هل هو & # 8220؛ مدفوع & # 8221؛ عندما يتم منح الخيار، عندما سترات، عند ممارسة الخيار، أو عند بيع الأسهم؟ أحد العوامل التي تستخدمها مصلحة الضرائب لتحديد ذلك هو كيفية مقارنة سعر الإضراب مع القيمة السوقية العادلة. وتتيح الخيارات الممنوحة بأقل من القيمة السوقية العادلة إيراد خاضع للضريبة، مع فرض غرامة على الاستحقاق. هذا أمر سيء جدا. لا تريد دفع فاتورة ضريبية عند استحقاق خياراتك حتى إذا لم تكن قد مارستها بعد. غالبا ما تفضل الشركات انخفاض أسعار الإضراب للخيارات & # 8211؛ وهذا يجعل الخيارات أكثر جاذبية للموظفين المحتملين. The result of this was a de-facto standard to set the “fair market value” for early stage startup options issuance purposes to be equal to 10% of the price investors actually paid for shares (see discussion on classes of stock below). In the case of startup stock options, they specify that a reasonable valuation method must be used which takes into account all available material information. The types of information they look at are asset values, cash flows, the readily determinable value of comparable entities, and discounts for lack of marketability of the shares. Getting the valuation wrong carries a stiff tax penalty, but if the valuation is done by an independent appraisal, there is a presumption of reasonableness which is rebuttable only upon the IRS showing that the method or its application was “grossly unreasonable”. Most startups have both common and preferred shares. The common shares are generally the shares that are owned by the founders and employees and the preferred shares are the shares that are owned by the investors. So what’s the difference? There are often three major differences: liquidation preferences, dividends, and minority shareholder rights plus a variety of other smaller differences. What do these mean and why are they commonly included? The biggest difference in practice is the liquidation preference, which usually means that the first thing that happens with any proceeds from a sale of the company is that the investors get their money back. The founders/employees only make money when the investors make money. In some financing deals the investors get a 2x or 3x return before anyone else gets paid. Personally I try to avoid those, but they can make the investors willing to do the deal for less shares, so in some situations they can make sense. Investors often ask for a dividend (similar to interest) on their investment, and there are usually some provisions requiring investor consent to sell the company in certain situations. Employees typically get options on common stock without the dividends or liquidation preference. The shares are therefore not worth quite as much as the preferred shares the investors are buying. That is, of course, the big question. If the “fair market value” doesn’t match the price at which you reasonably believe you could find a buyer, how do you about estimating the real world value of your options? If your company has raised money recently, the price that the investors paid for the preferred shares can be an interesting reference point. My experience has been that a market price (not the official “fair market value”, but what VCs will pay) for common shares is often between 50% and 80% of the price the investors pay for preferred shares. The more likely that the company will be sold at a price low enough that the investors benefit from their preference the greater the difference between the value of the preferred shares and the common shares. The other thing to keep in mind is that most people don’t have the opportunity to buy preferred shares for the price the VCs are paying. Lots of very sophisticated investors are happy to have the opportunity to invest in top-tier VC funds where the VC’s take 1-2% per year in management fees and 25-30% of the profits. All told, they’re netting around 60% of what they’d net buying the shares directly. So when a VC buys common shares at say 70% of the price of preferred shares, that money is coming from a pension fund or university endowment who is getting 60% or so of the value of that common share. So in effect, a smart investor is indirectly buying your common shares for around the price the VCs pay for preferred. If there hasn’t been a round recently, valuing your shares is harder. The fair market value might be the closest reference point available, but I have seen cases where it is 30-60% (and occasionally further) below what a rational investor might pay for your shares. If its the only thing you have, you might guess that a market value would be closer to 2x the “fair market value”, though this gap tends to shrink as you get close to an IPO. Expiration and termination. Options typically expire after 10 years, which means that at that time they need to be exercised or they become worthless. Options also typically terminate 90 days after you leave your job. Even if they are vested, you need to exercise them or lose them at that point. Occasionally this is negotiable, but that is very rare – don’t count on being able to negotiate this, especially after the fact. The requirement to exercise within 90 days of termination is a very important point to consider in making financial and career plans. If you’re not careful, you can wind up trapped by your stock options; I’ll discuss this below. Occasionally stock options will have “acceleration” language where they vest early upon certain events, most frequently a change of control. This is an area of asymmetry where senior executives have these provisions much more frequently than rank-and-file employees. There are three main types of acceleration: acceleration on change of control, acceleration on termination, and “double trigger” acceleration which requires both a change of control and your termination to accelerate your vesting. Acceleration can be full (all unvested options) or partial (say, 1 additional year’s vesting or 50% of unvested shares). In general, I think acceleration language makes sense in two specific cases but doesn’t make sense in most other cases: first, when an executive is hired in large part to sell a company, it provides an appropriate incentive to do so; second when an executive is in a role which is a) likely to be made redundant when the company is sold and b) would be very involved in the sale should it occur it can eliminate some of the personal financial penalty that executive will pay and make it easier for them to focus on doing their job. In this second case, I think a partial acceleration, double trigger is fair. In the first case, full acceleration may be called for, single trigger. In most other cases, I think executives should get paid when and how everyone else gets paid. Some executives think it is important to get some acceleration on termination. Personally I don’t – I’d rather focus my negotiation on obtaining a favorable deal in the case where I’m successful and stick around for a while. How many stock options you should get is largely determined by the market and varies quite a bit from position to position. This is a difficult area about which to get information and I’m sure that whatever I say will be controversial, but I’ll do my best to describe the market as I believe it exists today. This is based on my experience at two startups and one large company reviewing around a thousand options grants total, as well as talking to VCs and other executives and reviewing compensation surveys. First, I’ll talk about how I think about grant sizes, then give some specific guidelines for different positions. I strongly believe that the most sensible way to think about grant sizes is by dollar value. As discussed above, number of shares doesn’t make sense. While percent of company is better it varies enormously based on stage so it is hard to give broadly applicable advice: 1 basis point (.01 percent) of Google or Oracle is a huge grant for a senior exec but at the same time 1 basis point is a tiny grant for an entry level employee at a raw series-A startup; it might be a fair grant for a mid-level employee at a pre-IPO startup. Dollar value helps account for all of this. In general for these purposes I would not use the 409a “fair market value”. I would use either a) the value at the most recent round if there was one or b) the price at which you think the company could raise money today if there hasn’t been a round recently. What I would then look at is the value of the shares you are vesting each year, and how much they are worth if the stock does what the investors would like it to do – increases in value 5-10 times. This is not a guaranteed outcome, nor is it a wild fantasy. What should these amounts be? This varies by job level: Entry level: expect the annual vesting amount to be comparable to a small annual bonus, likely $500-$2500. Expect the total value if the company does well to be be enough to buy a car, likely $25-50k. Experienced: most experienced employees will fall in to this range. Expect the annual vesting amount to be comparable to a moderate annual bonus, likely $2500-$10k, and the total value if the company does well to be enough for a down-payment on a silicon valley house or to put a kid through college, likely around $100-200k. Key management: director-level hires and a handful of very senior individual contributors typically fall into this range. Key early employees often wind up in this range as the company grows. Expect the annual vesting amount to be like a large bonus, likely $10k-40k and the total value if the company does well to be enough to pay off your silicon valley mortgage, likely $500k-$1 million. Executive: VP, SVP, and CxO (excluding CEO). Expect the annual vesting amount to be a significant fraction of your pay, likely $40-100k+, and the value if the company does well to be $1 million or more. For those reading this from afar and dreaming of silicon valley riches, this may sound disappointing. Remember, however, that most people will have roughly 10 jobs in a 40 year career in technology. Over the course of that career, 4 successes (less than half) at increasing levels of seniority will pay off your student loans, provide your downpayment, put a kid through college, and eventually pay off your mortgage. Not bad when you consider that you’ll make a salary as well. You should absolutely ask how many shares are outstanding “fully diluted”. Your employer should be willing to answer this question. I would place no value on the stock options of an employer who would not answer this clearly and unambiguously. “Fully diluted” means not just how many shares are issued today, but how many shares would be outstanding if all shares that have been authorized are issued. This includes employee stock options that have been granted as well shares that have been reserved for issuance to new employees (a stock “pool”; it is normal to set aside a pool with fundraising so that investors can know how many additional shares they should expect to have issued), and other things like warrants that might have been issued in connection with loans. You should ask how much money the company has in the bank, how fast it is burning cash, and the next time they expect to fundraise. This will influence both how much dilution you should expect and your assessment of the risk of joining the company. Don’t expect to get as precise an answer to this question as the previous one, but in most cases it is reasonable for employees to have a general indication of the company’s cash situation. You should ask what the strike price has been for recent grants. Nobody will be able to tell you the strike price for a future grant because that is based on the fair market value at the time of the grant (after you start and when the board approves it); I had a friend join a hot gaming company and the strike price increased 3x from the time he accepted the offer to the time he started. Changes are common, though 3x is somewhat unusual. You should ask if they have a notion of how the company would be valued today, but you might not get an answer. There are three reasons you might not get an answer: one, the company may know a valuation from a very recent round but not be willing to disclose it; two the company may honestly not know what a fair valuation would be; three, they may have some idea but be uncomfortable sharing it for a variety of legitimate reasons. Unless you are joining in a senior executive role where you’ll be involved in fundraising discussions, there’s a good chance you won’t get this question answered, but it can’t hurt to ask. If you can get a sense of valuation for the company, you can use that to assess the value of your stock options as I described above. If you can’t, I’d use twice the most recent “fair market value” as a reasonable estimate of a current market price when applying my metrics above. One feature some stock plans offer is early exercise. With early exercise, you can exercise options before they are vested. The downside of this is that it costs money to exercise them, and there may be tax due upon exercise. The upside is that if the company does well, you may pay far less taxes. Further, you can avoid a situation where you can’t leave your job because you can’t afford the tax bill associated with exercising your stock options (see below where I talk about being trapped by your stock options). If you do early exercise, you should carefully evaluate the tax consequences. By default, the IRS will consider you to have earned taxable income on the difference between the fair market value and the strike price as the stock vests. This can be disastrous if the stock does very well. However, there is an option (an “83b election” in IRS parlance) where you can choose to pre-pay all taxes based on the exercise up front. In this case the taxes are calculated immediately, and they are based on the difference between the fair market value and the strike price at the time of exercise. If, for example, you exercise immediately after the stock is granted, that difference is probably zero and, provided you file the paperwork properly, no tax is due until you sell some of the shares. Be warned that the IRS is unforgiving about this paperwork. You have 30 days from when you exercise your options to file the paperwork, and the IRS is very clear that no exceptions are granted under any circumstances. I am a fan of early exercise programs, but be warned: doing early exercise and not making an 83b election can create a financial train wreck. If you do this and you are in tax debt for the rest of your life because of your company’s transient success, don’t come crying to me. What if you leave? The company has the right, but not the obligation, to buy back unvested shares at the price you paid for them. This is fair; the unvested shares weren’t really “yours” until you completed enough service for them to vest, and you should be thankful for having the opportunity to exercise early and potentially pay less taxes. Taxes on stock options are complex. There are two different types of stock options, Incentive Stock Options (ISOs) and Non-Qualified Stock Options which are treated differently for stock purposes. There are three times taxes may be due (at vesting, at exercise, and at sale). This is compounded by early exercise and potential 83b election as I discussed above. This section needs a disclaimer: I am not an attorney or a tax advisor. I will try to summarize the main points here but this is really an area where it pays to get professional advice that takes your specific situation into account. I will not be liable for more than what you paid for this advice, which is zero. For the purposes of this discussion, I will assume that the options are granted at a strike price no lower than the fair market value and, per my discussion on early exercise, I’ll also assume that if you early exercise you made an 83b election so no taxes are due upon vesting and I can focus on taxes due on exercise and on sale. I’ll begin with NSOs. NSO gains on exercise are taxed as ordinary income. For example, if you exercise options at a strike price of $10 per share and the stock is worth $50 per share at the time of exercise, you owe income taxes on $40 per share. When you sell the shares, you owe capital gains (short or long term depending on your holding period) on the difference between the value of the shares at exercise and when you sell them. Some people see a great benefit in exercising and holding to pay long term capital gains on a large portion of the appreciation. Be warned, many fortunes were lost doing this. What can go wrong? Say you have 20,000 stock options at $5 per share in a stock which is now worth $100 per share. مبروك! But, in an attempt to minimize taxes, you exercise and hold. You wipe out your savings to write a check for $100,000 to exercise your options. Next April, you will have a tax bill for an extra $1.9 million in income; at today’s tax rates that will be $665,000 for the IRS, plus something for your state. Not to worry though; it’s February and the taxes aren’t due until next April; you can hold the stock for 14 months, sell in April in time to pay your taxes, and make capital gains on any additional appreciation. If the stock goes from $100 to $200 per share, you will make another $2 million and you’ll only owe $300,ooo in long term capital gains, versus $700,000 in income taxes. You’ve just saved $400,000 in taxes using your buy-and-hold approach. But what if the stock goes to $20 per share? Well, in the next year you have a $1.6 million capital loss. You can offset $3,000 of that against your next years income tax and carry forward enough to keep doing that for quite a while – unless you plan to live more than 533 years, for the rest of your life. But how do you pay your tax bill? You owe $665,000 to the IRS and your stock is only worth $400,000. You’ve already drained your savings just to exercise the shares whose value is now less than the taxes you owe. Congratulations, your stock has now lost you $365,000 out of pocket which you don’t have, despite having appreciated 4x from your strike price. How about ISOs? The situation is a little different, but danger still lurks. Unfortunately, ISOs can tempt you in to these types of situations if you’re not careful. In the best case, ISOs are tax free on exercise and taxed as capital gains on sale. However, that best case is very difficult to actually achieve. لماذا ا؟ Because while ISO exercise is free of ordinary income tax, the difference between the ISO strike price and value at exercise is treated as a “tax preference” and taxable under AMT. In real life, you will likely owe 28% on the difference between strike price and the value when you exercise. Further, any shares which you sell before you have reached 2 years from grant and 1 year from exercise are “disqualified” and treated as NSOs retroactively. The situation becomes more complex with limits option value for ISO treatment, AMT credits, and having one tax basis in the shares for AMT purposes and one for other purposes. This is definitely one on which to consult a tax advisor. If you’d like to know if you have an ISO or NSO (sometimes also called NQSO), check your options grant paperwork, it should clearly state the type of option. Illiquidity and being trapped by stock options. I’ll discuss one more situation: being trapped by illiquid stock options. Sometimes stock options can be “golden handcuffs”. In the case of liquid stock options (say, in a public company), in my opinion this is exactly as they are intended and a healthy dynamic: if you have a bunch of “in-the-money” options (where the strike price is lower than the current market price), you have strong incentive to stay. If you leave, you give up the opportunity to vest additional shares and make additional gains. But you get to keep your vested shares when you leave. In the case of illiquid options (in successful private companies without a secondary market), you can be trapped in a more insidious way: the better the stock does, the bigger the tax bill associated with exercising your vested options. If you go back to the situation of the $5 per share options in the stock worth $100 per share, they cost $5 to exercise and another $33.25 per share in taxes. The hardest part is the more they’re worth and the more you’ve vested, the more trapped you are. This is a relatively new effect which I believe is an unintended consequence of a combination of factors: the applicability of AMT to many “ordinary” taxpayers; the resulting difficulties associated with ISOs, leading more companies to grant NSOs (which are better for the company tax-wise); the combination of Sarbanes-Oxley and market volatility making the journey to IPO longer and creating a proliferation of illiquid high-value stock. While I am a believer in the wealthy paying their share, I don’t think tax laws should have perverse effects of effectively confiscating stock option gains by making them taxable before they’re liquid and I hope this gets fixed. Until then to adapt a phrase caveat faber . Can the company take my vested shares if I quit. In general in VC funded companies the answer is “no”. Private equity funded companies often have very different option agreements; recently there was quite a bit of publicity about a Skype employee who quit and lost his vested shares. I am personally not a fan of that system, but you should be aware that it exists and make sure you understand which system you’re in. The theory behind reclaiming vested shares is that you are signing up for the mission of helping sell the company and make the owners a profit; if you leave before completing that mission, you are not entitled to stock gains. I think that may be sensible for a CEO or CFO, but I think a software engineer’s mission is to build great software, not to sell a company. I think confusing that is a very bad thing, and I don’t want software engineers to be trapped for that reason, so I greatly prefer the VC system. I also think it is bad for innovation and Silicon Valley for there to be two systems in parallel with very different definitions of vesting, but that’s above my pay grade to fix. What happens to my options if the company is bought or goes public? In general, your vested options will be treated a lot like shares and you should expect them to carry forward in some useful way. Exactly how they carry forward will depend on the transaction. In the case of an acquisition, your entire employment (not just your unvested options) are a bit up in the are and where they land will depend on the terms of the transaction and whether the acquiring company wants to retain you. In an IPO, nothing happens to your options (vested or unvested) per se, but the shares you can buy with them are now easier to sell. However there may be restrictions around the time of the IPO; one common restriction is a “lockup” period which requires you to wait 6-12 months after the IPO to sell. Details will vary. In a cash acquisition, your vested shares are generally converted into cash at the acquisition price. Some of this cash may be escrowed in case of future liabilities and some may be in the form of an “earn-out” based on performance of the acquired unit, so you may not get all the cash up front. In the case of a stock acquisition, your shares will likely be converted into stock in the acquiring company at a conversion ratio agreed as part of the transaction but you should expect your options to be treated similarly to common shares. Share this: Related. آخر الملاحة. Leave a Reply Cancel reply. It’s hard to sell a company if there is a log of acceleration. That could actually be counterproductive for option holders. Agree, that’s one of the reasons I think it is warranted only in a few specific cases. What happens to unvested stock in the case of a cash/stock acquisition? (for a generic Silicon Valley VC funded startup) Lot of it depends (including whether they keep the employees at all). But often they are converted to options in the new company. What happens if the company is bought before I was granted my options? In my employment agreement the granting is subject to board approval and that never happened. I got new options of the acquiring company (at a SHITTY strike price ) , anything to do about that? Probably nothing to do about it besides quit (though I am not a lawyer and you might ask one if there is a lot of money involved). How long did you work there without the options being granted? Up to a few months is normal, past that is unusual. I worked there for 6months part time and another 6months full-time. Basically the board of directors probably didn’t meet to approve the options of the new employees and when it did it discussed the buyout. I assume that they said to themselves, let’s not grant these options and grant options of the buying company instead. Ouch. Can you ask/have you asked asked a few questions: 1. Did the board meet during the time after you accepted the offer and started and prior to the acquisition and how many times? Did it review your proposed grant at the meetimg and if not why not? If it reviewed your proposed grant why did it not approve it? 2. On what basis was your new grant determined? Did they convert the grant in your offer letter based on the terms of the purchase or did they just give you stock in the acquiring company as a new employee of that company? I am assuming your options dated from joining full time, so it was a 6 month delay, not a year? While I might be popular online for saying they hosed you and they’re evil, situations like this can be complex. It is possible/likely that the board was in serious discussions about an aquisition for a number of months before it occured. This could have been ongoing from the time you joined, or started shortly afterwards but have been in progress at the first board meeting after you joined. If this was the case, the board may have been in a very hard situation with respect to valuing the stock options. If the acquisition discussion was credible enough, it would be material information that could force a re-evaluation of the fair market value of the shares. To avoid the risk of grantees (you) being liable for huge tax penalties, they would likely have wanted to retain a third party to do the valuation. Hiring the firm takes time, the valuation takes time, and board approval of the valuation takes time. During that time, the discussions might gave progressed – maybe they got a second higher offer. That could restart the clock. In any case, even if they were able to complete the valuation and grant the options, the valuation may well have been quite similar to the price offered by the acquirer and those options might have been converted to options in the acquiring company at a similar strike price to the price of your grant. So quite possibly what is at issue is whether your grant could have been granted at a somewhat (say 20 or 30%) lower strike price. If the value of the stock underlying your new grant (number of shares times strike price) is well in to the six figures or beyond, it may be worth consulting an attorney just in case, but my guess (and I am not a lawyer) is they are going to say that you just had bad timing. If it’s five figures or less, I don’t think its worth spending the legal fees for a small chance at a medium settlement. What I described is the way this happened in completely good faith with everyone involved trying to do what’s fair and legal for you in a complex situation. That’s not always the case, but I’d start by asking. You’re thinking the same as I do. Since the company have been planning an IPO and this buyout came in I’m sure the board have met several times since I joined. I too think that I should have gotten either an approval or decline of my options , neither was delivered to me, hence I believe this is a direct violation of my employment agreement. My options never materialized, I basically got the buying company options at a strike price which is the share price in the day of the buyout which means zero profit! I’m getting really pissed here and I think that this might even have legal implications. This is 5 figures but I think that the determining factor is that I think this isn’t completely legal , I don’t think they can just ignore this term of the contract just because they’re busy or not sure about the price. My guess is that you make some enemies with this post. It is clearly to the advantage of the company that the terms of stock options and vesting periods remain opaque. What if there were liquidity in options? That would be interesting, and wildly dangerous, I imagine, because such liquidity would be so predominantly speculative in the absence of knowledge of company fundamentals. Possible I suppose, but. Possible I suppose, but only ill advised companies and VC’s that I’m happy to stay away from. A successful growing company grants millions of dollars worth of options each year, and I think it works to their advantage to have people understand their value and thus make rational decisions about them. Re: liquidity, the illiquidity of the _options_ stems from the fact that they are subject to cancellation if you quit as well as some specific contractual terms. Your _shares_ should you exercise your stock can sometimes be liquid even before the company is public. That is certainly the case for well known private companies (eg, Facebook), and sometimes is the case for smaller companies as well; question is can you find an investor who wants to buy the shares. The biggest issue in liquidity of pre-IPO shares is the company’s cooperation in allowing a potential buyer to see the books. Often this will be restricted for current employees but more open for ex-employees. This can be very complex and the SEC has rules about shareholder counts, how the shares can be offered etc. Hello, I just received an employee stock option that would allow me to buy shares within five years. Do I have to buy the shares right away? or wait until my company goes public or another company (that is currently in stock trading) will aquire us? If I buy the shares now and after 2 years I left the company or they fired me, do I still have the right for my shares? If still have the right for my shares then I’m willing to expend few thousand dollars for it. I really appreciate your advice. Really sorry for the delayed reply. Usually you have all 5 years. Usually you can buy some now and some later. Tax issues vary, research them carefully. well written, and easy to understand…thanks very much. Well written for sure. An scenario I’d appreciate your feedback on. A small company was bought by a larger one and the employee was given her recalculated options. There are 2 years left on this employees vesting schedule. Without any prior negotiation at time of hire regarding acceleration of vesting, is there any way receive acceleration in case of termination? Unfortunately for the subject of your story, probably not. Most folks in small companies are employed “at will”. That means that their employer is under no obligation to keep them employed until the end of their vesting period or for any other reason. They can be fired because of a lack of work for them to do, a desire to hire someone less expensive to do the same job, a desire to restructure and eliminate their job, or because the company is unsatisfied with their work. The same holds true once they’ve joined the big company. Sometimes companies will offer “packages” to employees that they lay off. This is not done out of obligation but rather to help retain the employees who aren’t being laid off – who might otherwise fear being laid off with nothing and instead take another job. By treating the terminated employees nicely, the remaining employees are less likely to panic. Normally one should expect to vest only as long as their employment continues. The most common exceptions where acceleration can make sense but usually needs to be negotiated up front are positions where the individual is directly involved in selling the company (CEO, CFO etc) and/or is very likely not to be retained after the acquisition. How do unvested options work post-IPO? Is an IPO an event that can trigger acceleration, or is this reserved for acquisition typically? Can unvested shares be canceled post-IPO? Usually they continue vesting through the IPO as normal, with restrictions on selling them for some period of time ( 6 months is normal) post-IPO. It is very unusual for an IPO to trigger acceleration. While it is easy to see an IPO as a destination for a startup, it is really the beginning of a much longer journey. An IPO means that a company is ready to have a broader base of shareholders – but it needs to continue to deliver to those shareholders, thus it needs to continue to retain its employees. Most options are not cancelable other than by terminating the optionee’s employment or with the optionee’s consent. Details vary and there are some corner cases, but the typical situation is if the company doesn’t want you to collect any further options they’ll fire you. Occasionally companies will give people the option to stay for reduced option grants but that is unusual. By the way when I say “most” or “usually” I am referring to the typical arrangements in startups funded by reputable silicon-valley-type VCs. Family businesses and business that exist outside that ecosystem of startup investors, lawyers, etc may have different arrangements. If you read some of my posts on private equity owned companies and options, you’ll see that they have a somewhat different system for example. What happens if you exercise pre-IPO stock options (within 90 days of quitting) and the company never goes public? Then you own shares that may be hard to sell. The company may be acquired and you might grt something for your shares, or in some circumsances you can sell shares of private companies. But the money you pay to exercise the shares is at risk. Thank you Max! This entire article and your answer to my question has been the best write up on this topic that I could find on the Internet. شكرًا لك مرة أخرى! Great summary Max, i found it very useful. wow i personally know someone (well i guess many people do) who lost everything in the bubble and still owed $$$ in tax due to the exercise and hold you described here. he went bankrupt and had to flee out of state but still writes a hefty check to the IRS each and every month. Excellent…very well explained. Thanks Max. مادة كبيرة! I’m trying to learn more about employee stock options. I was granted options 4 years ago and now I’m being laid off so I wanted to make sure I’m taking advantage of the benefits (if there are any.) I received the agreement, signed it, and got a copy of it back signed by the corporate secretary. I never received any other documentation since. The company isn’t doing well, but the options were priced at a penny in the agreement. Should I contact HR or a financial advisor? Just slightly concerned since the company seems a little secretive to me. I have been with them for over 6 years. Thoughts are appreciated 🙂 Sorry for the delay in getting back to you. Usually after you sign your options agreement, there’s no further paperwork until you exercise. Usually you have 90 days after leaving until you have to exercise the options, but this varies from plan to plan and the details should be in the paperwork you signed. HR or Finance should be able to help you exercise your options if you want to; If you exercise you’ll pay a penny per share and the shares turn out to be worthless or may turn out to be valuable. If your instinct is that the company isn’t doing well and the shares will likely not be worth much, the question is whether its worth a gamble. If for example you have 20,000 options at $.01 each, its only $200 to exercise them so it may be worth it even if the odds are against you. One data point that you will need to finalize your decision is the FMV (fair market value) of the shares for tax purposes. The company should be willing to tell you this; if it is quite a bit more than a penny some taxes will be due on exercise but the shares are more likely to be worth something. If you can get more specifics about number of shares outstanding, debt, preferences, revenue, cash etc a financial advisor may be able to help; without that they’d would probably be shooting in the dark. I hope this helps, Thanks Max, I really appreciate it. After reading your article and doing some research I found out I was looking at the par value, not the exercise price. So in my case, I would be severely underwater. Now I understand! Thanks again for sharing your knowledge! Max, thanks for the great info. I am considering joining a tech startup and wonder if there are enough benefits for both the company and myself for me to be brought on as an independent contractor vs. an employee? Any info you have or can refer me to would be helpful. شكر! Sorry for the delay. There are quite a few qualifications that you must meet to work as an independent contractor; I don’t have them handy but a quick google search might turn them up. If you plan to work there full time for the long term, usually employment makes the most sense – though sometimes companies have more leeway to pay much more money to contractors; if that’s the case and they’re willing to do it and you qualify, it might make sense. But even then, you will probably not get benefits or stock options. Good luck with your decision. Why shareholder needs to pay again 50% the difference between of subscription price Convertible Prefered Stock (pre-IPO) and common stock IPO price? The terms of preferred stock vary, not only from company to company but also across different series of preferred stock in a company. I am not quite sure what you’re referring too but it may well be specific to the structure of those securities at your company. A bit of context could help, but the answer is probably going to be some form of “because that’s the rule defined for this form of stock in this situation”. Very informative post, thank you for sharing! May I contact you off-post for questions? Sorry for the delay. I may not have time to answer but feel free to try me first initial last name at gmail. Hi Max – thanks for the insightful article. I work for a private company (PE owned) that’s expecting an IPO in about 12 months. Half of my stock options have vested. I got them at a price of 3 and the current valuation is now at 4.5 or so. What happens if I leave AFTER the IPO but BEFORE the employee lock-up ends. Do I get to leave with my vested (as of departure date) options or do I need to pay the company to buy them at the granted strike PLUS pay the tax on the gains etc. Thanks. Putting aside any idiosyncrasies of your specific options agreement, typically you have 90 days after departure to exercise. So within that 90 days you need to pay the strike price and you incur a tax liability. Keep in mind the stock could decline before you can sell, so its not just acash flow exposure, you may wind up selling for less than you paid to exercise. Waiting until you are less than 90 days from the lockup ending reduces risk a lot, but I don’t know the opportunity cost to you. Thanks for the help! Question – I purchased stock and then my company got purchased. by another private company. My understanding is that the main investors lost money on their sale (they sold below what they put into the company). I had common shares, is that why I haven’t seen any payout? Also, the purchaser then got purchased by a public company…how crappy. Sorry to hear you didn’t get anything for your shares. Without knowing all the details, it sounds like you’re correct; typically if there isn’t enough to repay the investors, the common shareholders won’t get anything. Max thank you for the terrific article. Do you have any experience with seeing employees receive additional option grants with promotions? Is this common or only at key-level positions? I joined the sales team of a 50-person startup at an entry level position about 2 years ago. We’re now at about 100 employees and I’ve been promoted about 1.5 times (first from a lead-gen position to an Account Executive, then after good performance had my quota raised and salary increased, though no title change). I haven’t received any additional option grants but also haven’t asked. Is it reasonable to ask? Also, say they’ll agree to give me more, what are typical steps that have to happen until they’re officially granted? Is this something that needs to be discussed at the next board meeting, or does the CEO/Exec team have discretion to do this on an ad-hoc basis? Great question. It is common but not universal to receive additional grants with significant promotions, but there is wide variety in how these are handled: – Some companies give them shortly after the promotion (approvals take some time) – Some companies review follow-on grants on a semi-annual or annual basis; people who are promoted are typically good candidates to get them. – Some companies (unfortunately, in my view) operate on a squeaky wheel basis where they are only given when people complain. I would ask your employer what the process is to ensure that your stock is commensurate with your current contribution to the company. Without knowing all the details, it sounds like it may not be given the progress you’ve made. One situation to consider is that if the value of the company has increased dramatically, it is possible that the grant you got earlier in the company’s history for a more junior position is larger than the grant someone in your current position would get today. For example, if when you joined an entry level employee received 1000 shares and an account exec received 2500, but today an entry level employee receives 250 shares and an account exec receives 600. If this is the case, many companies would not give you additional shares to go with the promotion (but would increase your salary). While this example may sound exaggerated, if the company has twice as many employees, grants may be half the size per employee – often the board will think about how much stock should go to all employees as a whole per year, and now there are twice as many to share the same number of shares. Also often the grants for different roles aren’t nearly as precise as I described, but the principle remains valid even if the grants per level are ranges. Options grants almost always have to be approved by the board. Good luck; it sounds like you’re doing well at a growing company so congratulations. Thanks again Max, very helpful. i got an offer to work for a startup on a part-time basis keeping my full time job at my current employer. i will be paid only in the form of stock options (0.1%). not sure if this is a good deal. I’d look at it 2 ways: 1. What is the startup ‘worth’? If its an unfunded early stage idea it may be something like $1-2 million, in which case .1% is $1-2k for example. Of course if the ‘startup’ is Twitter its worth a lot more. In any case whatever that value is, is it fair compensation for your time? How long do you have to stay to vest the options? 1 month? 1 year? 4 years? And how much work are you expected to do? 2. How does your stake compare to other participants and their contribution? Did your two roommates found it in their garage two weeks ago and they’ll each own 49.95 to your 0.1? Or are there 100 full time employees sharing 50% and investors share the rest? the startup is in a very early stage with about 13 employees. the options vest at 1/48th of the total shares every month for 4 years. i think i need ask more details before i start the work. this is my first time working for a startup so i am not very clear.. I am new to this whole equity & stock options.. your article is the only basis for my reasoning.. I need your help! My company is a Green Sustainable clothes recycling company.. relatively new Green field.. not sure what are the general vesting schedules like.. any advice? we negotiated $1k / week + 5% vested equity.. initially when i started back in Oct/ Nov.. now that its time to draft the actual contract, they are saying how 1%/ year vesting is standard, while for whatever reason i thought the 5% would vest over 1-2 years.. how do i approach this? as of now company is worth $1 million. we are constantly loosing $, it will take at least 6 months- 1 year until we start being profitable.. does the evaluation of what i think im worth from what the company is worth today, or based on projections of what we will make in the future? we only have 1 kind of stock.. any provisions you are recommending to include? can i ask for a provision to protect myself from taxes and have it be deducted from my equity instead of paying for it our of my pocket? Thank you soo much. Sorry for the delay. I think 4 years is most common, maybe 5 next most, 1-2 years is unusual. I am not sure what else you are asking. If you are asking about taxes on the equity, if it is options there is typically no tax on vesting if the plan is set up properly (which will almost certainly require an attorney). The IRS will require cash for your tax payments, they don’t accept stock 🙂 How often should a company revalue their privatly held stock options? Any guidelines around that in the accounting standards? I am not a tax lawyer but I think for tax purposes the valuations are good for a year. If things change (eg, financing, offer to buy the company, or other significant events) you may want to do it more frequently, and for rapidly growing companies that might go public soon you may want to do it more frequently. Terrific article thank you ! With startups becoming a global tendency, it becomes complicated to create one model that fits all. Any thoughts on adjusting vesting schedules, cliff periods and accelerations to ventures occurring in high-risk geographical areas? i.e High-risk understood as high volatility & political unrest. One thing that I do see adjusted globally is some of the details to fit local tax laws – even US-based companies have to administer their plans differently in different jurisdictions. I am not expert at all but it may make sense to adjust some other parameters; I don’t know how much they vary from the US. Maybe a reader knows?? Great article, now for my question. Been working for a company 3 years, been vested, for example, 100,000 shares, at 5 cents a share. Leaving company, It looks like the period to exerci se, buying the shares will have about 7 more years. When I leave, how long does one usually, have to buy the shares, if they choose. I am a little confused about the 90days mentioned ealier in the article. Usually the option period is 10 years but only while you are employed. When you leave, the unvestef options go away and you have 90 days to exercise the vested options. Of course it depends on your specific option plan which may be completely different. I have some vested preferred shares. I’m not sure if or when the company will be acquired or go IPO. What are my options to liquidate them before any event ? Your option may be to find someone who wants to buy the stock in a private transaction with limited data. Or it may be that the company has to give permission even if you find a buyer. Trading private stock is difficult. Also if you have options, typically you will have to exercise them before you can sell them. How would you explain this scenario? Employee shall be entitled to 25,000 Company common share stock options at an exercise price of $6.25 per common share. These stock options shall be deemed to have been granted January 31, 2012 and shall have a term of 3 years from the effective date granted. These stock options shall remain vested for a period of 24 months in which Employee remains in his current position with the Company. It sounds like you have between 2 and 3 years in which to exercise them. The vesting language is a bit unclear to me. You may want to get some legal advice, I cannot interpret that clearly. Let me elaborate on this as I am in the middle of an asset acquisition (a division of the company is being bought) that will close on Jan 31, 2015. I am still trying to understand the language above and below and what my options will be once the transaction is complete.The strike price above given seems a bit high. The division is $5mil and was sold for 7x $35mil. How does this work in terms of an asset being acquired as opposed to the entire company? “In the event that the Company is acquired or successfully undertakes an initial public offering or reverse takeover, the vesting period relating to the stock options shall be removed and Employee shall have the full and unrestricted ability to exercise the stock options.” As Twitter is going public soon and I am in the last round of interview. If they offer me a job, will there be any impact to my equity offering if I join before they go IPO or will it be the same after they go IPO? Which will be most beneficiary to me? Typically people expect the price to increase on I and thus try to get in prior. Predicting what actually happens is hard,for example Facebook went down. But generally joining before IPO is viewed as a better bet. On the day of my 7hrs in person interview conclusion, HR mentioned that they are not the highest paid company around, they come in like 60th percentile… But their RSU are at great offer. So I am guessing RSU is equal to Stock option they are referring to? Also, if they offer me RSU/Options, is that something I have to pay for at the evaluation of the company even prior to they going IPO? Great article, I didn’t know anything about stocks, vesting, options, shares until reading this so it’s helped me understand a bit better! I have been working for a start-up for 5 months and am on the typical vesting schedule of 25% after 1 year and another 6% each month after that. I have been offered just over 5000 shares for .0001. Our company is expecting to be acquired in the next 90 days so I could end up with no vested options… What happens if we get acquired before I am vested? I am sure there a few different scenarios that could play out depending on who buys us but I’d like to know what COULD happen so I can approach HR about it and see what their plan is. I have read on other ‘stock options explained’ websites that my shares could be wiped out, I’ve read they could be accelerated and I have read they could be absorbed into the new company that acquires us… is that correct? The other thing that complicates it is that our company has a few different products we offer and the one that is getting acquired is the one I work on.. so I’ve heard that when that product/company is acquired in 90 days, our team is going to ‘break off’ and move to a different product (within the same company) and continue on as normal. Does this make sense? It depends. Typically if the acquiring company does not want to keep you they can terminate you and your unvested options will not vest. If they want to keep you they would typically exchange your options for options in the new company. They will have some discretion in how to do this. Hopefully they will want to keep you and will treat you well. Hi Max.. great article.. a quick question.. after 4 years in a startup i changed the jobs and bought all my vested incentive stock options. Now after 6 months the company is acquired by another company for cash buyout. Since I exercised my stock options just 4 months ago, will I be not considered for Long term Capital gain taxes? Or can I hold on to my share certificates for 9 more months and then will I eligible for Long term capital gain tax rate? My strong suspicion is that you can’t wait 9 months. Check with an attorney to be sure, it could depend on the details of that specific transaction but usually they close faster than that. Interesting article! Question for you: I was part of a startup that was acquired and had ISO’s. We received an initial payout and had a subsequent release of the escrow amount withheld. This escrow payout was received over 1 year after the sale of the company. What is this payout considered? Is it a long term capital gains? We were paid out through the employer via the regular salary system (taxes taken) and it was labeled as “Other bonus” but it was clearly part of the escrow. Also, what about a milestone payout that falls under similar circumstance? شكر! I am not a tax attorney so I am not sure. If it came through regular payroll as a bonus my guess is that it is not long term capital gains. If it is a lot of money I would talk to a CPA and / or a tax attorney. Hi Max – مادة كبيرة! شكرا لكم. I have a question. I joined a company as one of the first 3 sales directors hired and was told in my offer letter I have 150,000 stock options pending board approval. I have now been working for the company for 18 months and have not received any documentation regarding my options. I am continually told that they will be approved at the next board meeting but that has not happened and I was recently told they would be approved after the next round of funding but that did not happen either. What is happening here and what is your recommendation? Thank you in advance for your assistance. Something is not right. Sometimes the approval will be left out of a board meeting. With really bad luck you could be skipped twice. There is no good explanation for 18 months. The ‘best’ situation from a they-are-not-screwing-you perspective that I can think of is that the next round of funding will be a ‘down’ round and they are waiting to give you a lower price. But something is wrong with your company and I would be looking hard for something new. Sorry to be the bearer of bad news. If the CEO has an explanation that really makes sense feel free to share it and I will let you know what I think, maybe I have missed an innocent explanation but this does not sound right. Thanks so much for confirming what I was thinking, Max. To my knowledge the board has met several times and our CEO repeatedly states the valuation of our company is going up so I have not heard about a down round. We have had the same original investors for a few years and have recently had a new influx of cash in the form of loan but are still seeking that outside VC investment. I may have another start up offer coming soon and this information will help when I make the decision whether to accept the new position. Thank you again for your help!! Startup Stock Options Explained. Category: Business. 1. Understanding Your Stock Options The CES Group at Morgan Stanley © 2013 Morgan Stanley Smith Barney LLC. Member SIPC. Yesware Presentation Series July 17th, 2014 2. Agenda • Stock Ownership • Basics of Stock Options • Types of Stock Options • Exercise Methods Provided by Plans • Exercise Decisions 3. 2 THE CES GROUP 1650 Market Street, Floor 42 Philadelphia, PA 19103 (215) 963-3853 • Jacob Guzman, Corporate Client Group Director, Vice President Morgan Stanley • Robert Biggs, Executive Financial Services Director, Vice President Morgan Stanley • David Charton, Financial Advisor, Portfolio Manager Morgan Stanley Presenter Information 4. Basics of Stock Options 5. 4 • Exercise – The purchase of shares underlying an option. • Fair Market Value / Market Place / Current Trading Price – For tax and accounting purposes, the value of a share of stock on any given date. In a public company, fair market value is determined with reference to the price posted on the applicable stock market. • Grant – The act of awarding stock options by a company to its employees. • Grant Price / Exercise Price – The purchase price per share as set forth in your stock option agreement or option grant document. • Grant Expiration Date – A date, predetermined by the company, on which your option grant will expire and the option can no longer be exercised. – Acceleration of the expiration of your grant may occur upon certain events, like your termination from the company. Please consult your grant agreement or plan documents for specific details. Glossary of Terms for Stock Options 6. 5 • Option Shares – The specific number of shares granted in relation to the option. • Important Note: an option is a right to buy shares; it is not a share of stock. • Share of Stock – Represents ownership in a company. – Trades on an exchange. • Stock Options – The right, or option, to purchase company stock for a specified period of time at a specified price (grant / strike / exercise price). • Vesting Schedule – Time at which portions of the option grant become available for exercise. Vesting schedules may be staggered with a portion of the grant vesting over a given time frame (e.g., 25% vests each year from grant date) or all the options can vest at once (e.g., 100% vests one year from grant date). Only when an option has “vested” is it available for exercise. Glossary of Terms for Stock Options (cont’d) 7. 6 3-Year Cliff Vesting Schedule Year 3 All 450 shares are vested / exercisable Grant date For illustrative purposes only. 450 stock option grant, 100% vesting after three years 8. 7 4-Year Graded Vesting Schedule For illustrative purposes only. 100 stock option grant, 25% vesting each year 25 shares are vested / exercisable Year 1 Year 2 Year 3 Year 4 25 more shares are vested / exercisable 25 more shares are vested / exercisable 25 more shares are vested / exercisable Grant date 9. 8 Grant Price vs. Current Trading Price For illustrative purposes only. Current trading price at time of exercise Stock Price Grant Price (FMV on grant date, price that shares are exercised at) $6 spread at exercise before any taxes, commissions and applicable fees $25 $19 10. 9 Grant Price vs. Current Trading Price For illustrative purposes only. Option has no positive spread (“under water”) $15 $19 $4 Decline from Grant PriceGrant Price (FMV on grant date, price that shares are exercised at) Exercise will not be allowed since the option is “under water” Stock Price 11. 10 In the Money or Out of the Money? For illustrative purposes only. • Intrinsic value is the difference between exercise or strike price of an option and the market value of your company’s common stock Example: 100 shares with a grant price of $10 per share $10 Grant price $5 intrinsic value ⇒ options are $500 “in the money” $5 trading price at a future date $0 intrinsic value ⇒ options are “out of the money” or “underwater” $15 trading price at a future date $10 Grant price 12. Types of Stock Options 13. 12 • The difference between the strike price and the market value (“spread”) is taxed as ordinary income at the time of exercise. • Appreciation on stock held after exercise is taxed as a capital gain. – Stock sold in 12 months or less from exercise date is short-term capital gain or capital loss. – Stock sold more than 12 months after exercise date is long-term capital gain or capital loss. – Cost basis is stock price at time of exercise. Non-qualified Stock Options (NQSOs) 14. 13 • Can only be granted to employees of a company. • Tax withholding on the gain is not required at the time of exercise, although may be owed at year-end. • Spread at exercise may be subject to Alternative Minimum Tax (AMT).* • Long-term capital gain treatment (or capital loss) on stock sale if the holding period is met: – Holding period is 2 years from grant and one year from exercise. – Tax treatment changes when ISO stock is not held for required period (spread is reported as ordinary income) resulting in a disqualifying disposition. – Cost basis is equal to grant price. *Morgan Stanley Smith Barney LLC and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. Incentive Stock Options (ISOs) 15. 14 • Required holding period is 2 years from grant, and one year from exercise. • When stock is sold before the end of the holding period: – Capital gain is converted to taxable compensation. – Alternative Minimum Tax (AMT)* is eliminated for shares sold in same calendar year as exercise. *Morgan Stanley Smith Barney LLC and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. Disqualifying Disposition for ISOs 16. 15 • For ISOs, the spread at exercise may be subject to AMT.* • For individuals who have utilized specific tax deductions and expenses in excess of certain stated limits. • Compare regular income tax with AMT* calculation, and pay the higher of the two tax liabilities. *Morgan Stanley Smith Barney LLC and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. Alternative Minimum Tax 17. 16 • An ISO grant’s fair market value within the calendar year that it becomes exercisable cannot exceed $100,000. • Any ISO grant(s) that exceed the $100,000 limit are considered NQSOs (non- qualified stock options) and are subject to taxation at exercise. The split occurs at the time of the option(s) are granted; not at the time the participant exercises the option(s). • The ISO grant value is determined by multiplying grant price by the number of vested options. $100,000 Limit on ISOs 18. 17 Example of ISO Limit Employee A • Receives 12,000 ISOs with a grant price of $20. • 3,000 options vest in first year. • 3,000 x $20 = $60,000. • Within the $100,000 limit. Employee B • Receives 12,000 ISOs with a grant price of $20. • 3,000 options vest in first year. • 3,000 x $20 = $60,000. • Receive another grant: – 12,000 ISOs received with a grant price of $15. – 3,000 x $15 = $45,000 vested. • $60,000 + $45,000 = $105,000 vested in same year. • X number of shares from the second grant (equal to $5,000) treated as NQSOs. For illustrative purposes only. 19. 18 Tax Treatment for ISOs vs. NQSOs Spread at Exercise Stock Appreciation Incentive Stock Options May be subject to Alternative Minimum Tax (Qualifying Disposition) Capital Gain Cost basis = Grant Price Disqualifying Disposition – ISOs Taxable compensation, taxes paid with estimated tax payments or with income tax return Short- or long-term capital gain, (early stock sale) depending on holding period Non-qualified Stock Options Payroll tax withholdings, ordinary income Short or long-term capital gain depending on holding period, Cost basis = fair market value at exercise Morgan Stanley Smith Barney LLC and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. 20. Exercise Methods Provided by Plan 21. 20 Hypothetical Example: Exercise and Hold (NQSOs) Exercise and Hold • Pay out of pocket: grant price (option cost) + taxes and any applicable fees. • Receive the stock and hold as an investment. 1 Does not include transaction fees. For illustrative purposes only. 100 Share Exercise – Sample Market Price = $25.00 Exercise and Hold (1) ($) Fair Market Value at Exercise ( $25.00 per share) 2,500 Option Cost ( $19.00 per share) 1,900 Spread at Exercise ( $6.00 per share) 600 Total Taxes (for example – Federal, State, Local, Employee) (231.90) Amount due from participant (option cost $1900 + taxes 231.90) (2,131.90) 100 shares x the current market price of $25.00 2,500 Cost Basis on Held Shares = $25 22. 21 Hypothetical Example: Exercise and Hold (ISOs) 1 Does not include transaction fees. For illustrative purposes only. 100 Share Exercise Exercise and Hold (1) ($) Fair Market Value at Exercise ( $25.00 per share) 2,500 Option Cost ( $19.00 per share) 1,900 Spread at Exercise ( $6.00 per share) 600 Total Taxes (for example – Federal, State, Local, Employee) (0) Amount due from participant (option cost $19 x 100 Shares) (1,900) 100 shares x the current market price of $25.00 2,500 Cost Basis on Held Shares = $19 23. 22 • Exercising your options and selling enough shares of resulting stock to cover the cost of the option exercise, plus taxes, commissions and applicable fees. • A form of cashless exercise. • Receive the balance of stock as an investment to hold. • Cost basis on held shares = current trading price of the stock at the time of exercise for NQSO. Exercise and Sell to Cover 24. 23 Hypothetical Example: Exercise and Sell to Cover (NQSOs) 1 Does not include transaction fees. For illustrative purposes only. 100 Share Exercise Exercise and Sell to Cover (1) ($) Market Value at Stock Sale 2,500 Option Cost 1,900 Spread at Exercise 600 Total Taxes (231.90) Options Cost + Taxes ($1900 + 231.90) (2,131.90) Shares Sold to Cover Option Cost +Taxes ($2,131.90 / $25) 86 Cash Left Over 18.10 Shares Deposited to Your Account 14 shares valued at $350.00 Cost Basis on Remaining Shares = $25 25. 24 Hypothetical Example: Exercise and Sell to Cover (ISOs) 1 Does not include transaction fees. For illustrative purposes only. 100 Share Exercise Exercise and Sell to Cover (1) ($) Value at Stock Sale (Fair Market Value = $25) 2,500 Option Cost 1,900 Spread at Exercise 600 Federal Income Tax 0 State / Local Tax 0 Total Taxes 0 Shares Sold to Cover (Option Cost / $25) 76 Cash Left Over 0 Shares Deposited to Your Account 24 shares valued at $600.00 26. 25 • Form of “cashless exercise” or “same-day sale.” • Simultaneously exercise option and sell stock proceeds. • Receive a cash payment for the difference between the option price and the price at which the stock was sold, less taxes, commissions and applicable fees. Exercise and Sell All 27. 26 Hypothetical Example: Exercise and Sell All (NQSOs) 1 Does not include transaction fees. For illustrative purposes only. 100 Share Exercise Exercise and Sell (1) ($) Market Value at Stock Sale ($25 x 100 Shares) 2,500 Option Cost ($19 x 100 shares) 1,900 Spread at Exercise ($6 x 100 Shares) 600 Federal Withholding 28% (168.00) State / Local Tax 3% (18.00) Social Security Tax 6.2% (37.20) Medicare Tax 1.45% (8.70) Total Taxes (231.90) Net Proceeds ($600 – $231.90) 368.10 28. 27 Hypothetical Example: Exercise and Sell All (ISOs) 1 Does not include transaction fees. For illustrative purposes only. 100 Share Exercise Exercise and Sell (1) ($) Market Value at Stock Sale ($25 x 100 Shares) 2,500 Option Cost ($19 x 100 shares) 1,900 Spread at Exercise ($6 x 100 Shares) 600 Federal Income Tax 28% (168) State / Local Tax 3% (18) Total Taxes (186) Net Proceeds 414 (600 – 186) Remaining Shares 0 29. 28 • This is a branch-handled transaction where you use shares of company stock you already own to pay for the exercise of options. • Additional shares received = spread at exercise. • Market value of additional shares becomes taxable compensation; Example: 24 additional shares with a current trading price of $25 per share = taxable compensation of $600. Stock Swap Exercise Example: 100 options, grant price $19, Market value $25 Turn over 76 owned shares to exercise 100 options, Receive 100 shares of stock: 24 additional shares 76 shares 100 shares For illustrative purposes only. 30. Exercise Decisions 31. 30 • Do you believe the stock price will give you favorable returns? • What are your tax issues? • What are the specifics of your plan? • What is your funding situation? Are you able to pay the option costs out of pocket? • Are you comfortable carrying the market risk that comes with owning stock? Various Issues in Exercising Options Note: Morgan Stanley can not advise you on whether or not to exercise your stock options. 32. 31 • Market Order: An order to buy or sell a specified number of shares at a price close to the current market price. – Executed at whatever price is available when your order reaches trading floor. – Generally, the order is guaranteed to be filled. • Limit Order: An order to sell a stated amount of shares at a specific price. – Exercise will not occur if stock does not reach limit price. – Limit orders will be good until cancelled (GTC) and will expire one year from the order entry date. – A cancellation of an existing order can be requested by participant or can occur due to the Company’s Plan Rules or because the GTC order has expired. Market Order or Limit Order? 33. 32 • You will receive the information necessary to access your plan account information online. • You will receive either: – A ‘BAMail,’ a Benefit Access containing a personal URL. This URL links you to the site to customize your User Name and Password. OR – A hard copy Internet welcome letter that contains your temporary User Name and Trading PIN. You will receive separate a mailing 2 days later with your temporary Internet Password. Use your temporary User Name and Password to log onto benefitaccess – Once you login using your temporary credentials, you can customize your User Name and Password. Internet Activation 34. 33 benefitaccess • View account information in various ways. • Model transactions: – Determine Your Proceeds. – Determine How Many Options to Exercise. – Determine the Cost of Holding Shares. – Holding Shares with No Cash Outlay. • Execute trades in real-time (Market Orders or Limit Orders)/Exercise & Sell to Cover Orders. • Access online tutorials and trading simulators. For illustrative purposes only. 35. 34 • Available Monday through Friday, 22 hours a day. – System closed for maintenance for 2 hours anytime between 10:00 p.m. and 2:00 a.m. ET. • Access real time quotes during market hours. • Place a real-time market or limit order. – Market Order: Buy or sell a specified number of shares at a price close to the current market price. – Limit Order: Sell a stated amount of shares at a specific price. • Review recent transactions. • Customize your IVR trading PIN. Interactive Voice Response (IVR) 36. 35 • Service Professionals are available Monday through Friday, 8:00 a.m.–8:00 p.m. ET on market trading days. • Access through the Interactive Voice Response. • You must speak to a Service Professional if you: – Wish to transact an Exercise and Hold. – Do not know your IVR trading PIN. – Do not use the Internet and you have special proceeds instructions (wire, overnight delivery). – Do not have a touch tone phone. Contact Center – Service Professionals 37. 36 • Call 1-800-367-4777 for Morgan Stanley’s Interactive Voice Response System to obtain a stock quote during market hours as well and enter either a market sell order or a limit sell order. – Automated response available 24 hours. – Service Professionals (SPs) are available from 8:00 a.m. – 8:00 p.m. ET, Monday through Friday. – After market hours, you will receive last trading price. • To speak with a Service Professional for other orders or questions. • For questions on accessing the Internet or exercising online, call the Benefit Access help desk at 888-873-1194 or 801-617-7414, available from 8:00 a.m. – 8:00 p.m. ET, Monday through Friday. Help Numbers 38. 37 © 2013 Morgan Stanley Smith Barney LLC. Member SIPC. CRC 677993 (06/13) Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), and its affiliates and Financial Advisors do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise agreed to in writing by Morgan Stanley. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are urged to consult their tax or legal advisors before establishing a retirement plan or to understand the tax, ERISA and related consequences of any investments made under such plan. Please note that the information contained herein is not investment advice or an offer to sell securities, but merely a general overview of how your stock options work. Morgan Stanley does not make any recommendations as to whether and when you should exercise your stock options or sell the shares you acquire upon exercise of your option. 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