ESOPs is offered by an early age startup. What are the things I does be aware about? or ask the founders to clarify with me.
PaleAnybody
Stealth
9 months ago
Firstly, it's a wild bet. Don't spend money banking on this as an investment. It's an investment with wild outcomes nevertheless.
Few things common in terms:
- 4 year vesting. First 25% at end of year 1 and then monthly/quarterly
- only zero strike/exercise price
- thumb rule is 25% to 100% of CTC in ESOPs depending upon seniority
- to Calc above value take latest share price
- Exercise period at least 10 yrs even if you leave (this is very important as you are very unlikely to stay until the first liquidation opportunity)
-
Could you please elaborate zero strike/exercise price?
Is it shares at face value of 10?
TabsOverSpaces
Stealth
9 months ago
No, it's the pre decided amount that you have to pay to get every unit of share.
Taking an example of a publicly traded company, but the logic should stay the same.
As an example, if you have a contract with the strike price as 10 rupees, and the share is valued at 100.
That means that you pay 10 rupees per share to the company to "exercise" your option. And then you will be taxed on 100-10 according to the income tax rules.
If you have a contract saying that you will vest say 300 shares on a certain date, that means from that date till you exercise those shares, you will have to pay 10*300 to the company, and the taxes to get shares worth 300*100 in your demat account.
Now if the strike price is higher than the stick's valuation, that option is essentially worthless at that point in time, as you will be paying more than the share's value to get that stock.
I had a strike price of 1 rupee per share, and that seems fine to me. Don't chase an absolute zero strike price I think.
See more comments
Kamlesh
Stealth
9 months ago
There was another post on this, try searching. Had good comments and suggestions.
If you already have RSUs instead if ESOPs, do you have to pay tax to get them into your demat account or you can directly own them? Take an example of Google or Microsoft
TabsOverSpaces
Stealth
9 months ago
Depends on the company.
I have heard of 2 options.
One is you pay the full tax, and then get the shares credited.
Another is where the company sells the shares needed to cover the taxes, and then credits the rest into your account.
But this is dependent on the company policy, one thing you can be sure of is that you will be taxed.
Discover More
Curated from across
