I am at a VC backed early stage startup. Have been offered Esops.l but have no clue on this. Can somebody explain to me how can I make money from ESOP by answering these-
2)) When the company buys back from me assuming my vesting was over and I could hold them on, what's the amount I will get? I am assuming it's (no of options * current share price) - (no of options * strike price issued to me). Is that correct? If yes, how is the current share price calculated for non listed company?
Now when the company buys these, what's the tax I have to pay? I am trying to understand if availing options and selling options are different and if both have taxes
What happens in IPO? Who buys from me? Where can I sell? What price do I sell at?
(1) Yes. This will typically be exercise price * no. of options. You are exercising your rights to convert your options into shares of the company.
(2) Yes, that's mostly it. Current share price is calculated by fair market valuation of the company. For non-listed companies, this would either be generally available in your Carta/Equitylist dashboard or the company will share this number with you at the time of the buyback. You could reach out to your finance/HR/equity team to understand this number before the buyback.
(3) Yes and yes. There's perquisite income tax when you exercise the options and there's capital gain tax on selling the shares in a buyback/public market.
(4) In most cases, there's a buyback before an IPO. The company will list the shares at a higher price than your share price. In case that doesn't happen, you are a public equity holder post the IPO and your share price can increase/decrease as the market moves.
Another important thing to note is the exercise window. You can't hold the options forever after your employment ends. You usually have a 5 year to 10 year exercise window after the employment period is over. Many startups have a 60 day window though - typically enforced by greedy VCs to snatch back the equity.
Thanks this is super helpful!
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@SubtleRed
Great questions. A few others in your co will also have these queries.
I would recommend that you ask these in your co to the relevant folks.
Primarily, my question targets startups which went ipo where you may joined when it was a private company and later it went public and you liquidates it.
Ever heard about people getting payout for their vested ESOPs when they exit the firm? Does this really happen?
Someone please give some advice on how can one negotiate ESOPs? How to negotiate vesting period (if possible)? How to sell ESOPs? Can you sell ESOPs after you leave the company?
Do you need to purchase a company’s ESOPs(at a discounted...
