If you\u2019re leaving your company, you probably have a lot on your mind. But between finishing up projects, exchanging contact info with coworkers, and figuring out health insurance coverage, don\u2019t forget to think about your equity.<\/p>\n\n\n\n
Remember: your company isn\u2019t obligated to remind you about any stake you may be entitled to. And if the company is still privately owned, you probably can\u2019t turn your stock into cash\u2014yet.\u00a0<\/p>\n\n\n\n
But sometimes, equity can turn into real wealth. And if your company does well, you could end up earning more from your equity than from your salary<\/a>.<\/p>\n\n\n\n So regardless of why you\u2019re leaving your company, it\u2019s time to make some big decisions about your equity. Here\u2019s what you need to know.<\/p>\n\n\n\n It\u2019s important to know what type of equity you have because each can have different implications.<\/p>\n\n\n\n If you have RSUs<\/a>, for example, you don\u2019t need to do anything to receive them\u2014you simply receive your shares of stock when certain conditions are met (you stay at the company for a certain amount of time and the company IPOs, for example).<\/p>\n\n\n\n If you have ISOs<\/a> or NSOs<\/a>, on the other hand, you have to decide whether you want to exercise your options (purchase your shares) when you leave. ISOs and NSOs are types of stock options<\/a>, which aren\u2019t actual shares of stock\u2014they\u2019re the opportunity to purchase shares at a fixed price.\u00a0<\/p>\n\n\n\n To see what type of equity you have, check your grant<\/a>. In general, though, many early-stage companies offer full-time employees ISOs. Then, when they grow, they sometimes switch to RSUs. If you\u2019re a contractor, the company may offer you NSOs.<\/p>\n\n\n\n Companies usually make you stay for a certain amount of time to earn your equity. This process is called vesting<\/a>. In most cases, you have to stay for at least a year to vest any equity (your grant may call this a \u201cone year cliff\u201d).\u00a0<\/p>\n\n\n\n When you leave a company, only your vested equity matters.<\/p>\n\n\n\n Say your company grants you 4,000 ISOs that vest over a four year period and come with a one-year cliff. If you leave before you hit your one year mark, you won\u2019t get any equity. If you stay for exactly two years, you vest 2,000 options. You don\u2019t vest all 4,000 ISOs until you work at the company for four years. If you leave before then, you forfeit any unvested options.<\/p>\n\n\n\n If you\u2019re voluntarily leaving your company and think your equity could be valuable, it may make sense to time your departure date to maximize your vested equity. Many companies switch to monthly vesting after you hit your one year cliff, so if you started on January 1, 2019 and were planning on leaving on May 30, 2020, changing your last day to June 1, 2020 could help you vest another month\u2019s worth of equity.<\/p>\n\n\n\n If you\u2019ve already exercised options, you own those shares\u2014your company usually can\u2019t take them away from you when you leave. However, you may want to check your grant to be sure. For example, if it contains a clawback provision or language around \u201ccompany repurchase rights,\u201d \u201credemption,\u201d or \u201cforfeiture,\u201d your company may have the option to forcibly buy back shares from you.<\/p>\n\n\n\n Also, if you early exercised<\/a> (exercised options before they vested), your company has the option to repurchase any unvested shares when you leave.<\/p>\n\n\n\n One of the most important things to know when leaving a company: you only have a certain amount of time to exercise your vested options after leaving.<\/strong><\/p>\n\n\n\n This time period is called your post-termination exercise (PTE) period<\/a> or window. If you don\u2019t exercise within this window, you\u2019ll forfeit your options.<\/p>\n\n\n\n At many companies, this period is 90 days (though some offer a longer period<\/a> and we\u2019re encouraging companies to follow suit<\/a>). However, some companies are amending PTE windows via individual separation agreements at the time of employee departure.<\/p>\n\n\n\n You should be able to find the details in your grant or ask your company about their policy. Take note of this before<\/em> you leave\u2014your company probably won\u2019t remind you or keep track of the deadline for you.<\/p>\n\n\n\n Even if your company offers a longer PTE period, 90 is still an important number to remember. If you don\u2019t exercise your ISOs within 90 days, you\u2019ll lose their favorable tax treatment and they\u2019ll be treated like NSOs instead.<\/p>\n\n\n\n If your company is currently remote because of COVID-19 and you\u2019re interested in exercising your options, make sure you ask about the process ASAP. Unless your company uses a platform like Carta<\/a>, you may have to write a paper check and get it to your company by the time your PTE period ends. Otherwise, you may miss your exercising window.<\/p>\n\n\n\n To figure out how much you\u2019ll pay, multiply the number of shares you want to purchase by your strike price (which you can find in your option grant). For example, if you want to purchase 1,000 shares and your strike price is $1.50, you\u2019ll pay $1,500.<\/p>\n\n\n\n To help decide whether you want to exercise, you may want to think about (and maybe even ask your company about) liquidity, or whether\/when you can exchange your shares for cash. With private companies, if you exercise, you may not get your money back for a while\u2014if at all. The company would have to run a liquidity event, such as a tender offer<\/a>, get acquired, or go public for you to be able to sell your shares. So it\u2019s important to figure out whether you can afford to part with that cash.<\/p>\n\n\n\n Many employees end up walking away from their options not because they don\u2019t think the shares are valuable, but because it\u2019s too hard to come up with the money. This is especially true because:<\/p>\n\n\n\n However, if you really believe your equity is worth pursuing, you may have some options.<\/p>\n\n\n\n If you exercise your options, you don\u2019t just need enough money to purchase your shares\u2014you should also prepare for the tax implications<\/a>.<\/p>\n\n\n\n Special note: one of the perks of ISOs is you usually don\u2019t have to pay taxes when you exercise<\/a> (like you do with NSOs). However, if you don\u2019t sell your shares in the same calendar year, you may have to pay AMT, which can sometimes be a significant amount. Before exercising, we recommend checking out our AMT calculator<\/a> to see what your AMT bill might look like.\u00a0<\/p>\n\n\n\n Keep in mind that we\u2019ve only covered common scenarios. Your situation could differ, so we always recommend thoroughly reading your grant, asking any pressing questions before you leave your company, and talking to a financial professional. This can help you make the best decisions for your situation and transition into your next chapter as smoothly as possible.<\/p>\n\n\n\n DISCLOSURE: This communication is on behalf of eShares Inc., d\/b\/a Carta Inc. (\u201cCarta\u201d).\u00a0 This communication is for informational purposes only, and contains general information only.\u00a0 Carta is not, by means of this communication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services.\u00a0 This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests.\u00a0 Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein.<\/p>\n","protected":false},"excerpt":{"rendered":" If you\u2019re leaving your company, you probably have a lot on your mind. But between finishing up projects, exchanging contact info with coworkers, and figuring out health insurance coverage, don\u2019t forget to think about your equity. Here\u2019s what you need to know.<\/p>\n","protected":false},"author":66,"featured_media":6524,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[9],"tags":[11,260,333,134],"acf":[],"_links":{"self":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/posts\/6523"}],"collection":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/users\/66"}],"replies":[{"embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/comments?post=6523"}],"version-history":[{"count":0,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/posts\/6523\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/media\/6524"}],"wp:attachment":[{"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/media?parent=6523"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/categories?post=6523"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www-staging.carta.com\/sg\/wp-json\/wp\/v2\/tags?post=6523"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}What type of equity you have<\/h2>\n\n\n\n
How to figure out what type of equity you have<\/h3>\n\n\n\n
How much you\u2019ve vested<\/h2>\n\n\n\n
How much you\u2019ve already exercised<\/h2>\n\n\n\n
How long you have to exercise your remaining vested options<\/h2>\n\n\n\n
How to exercise<\/h2>\n\n\n\n
How liquid your equity is<\/h2>\n\n\n\n
What to do if you can\u2019t afford to exercise<\/h2>\n\n\n\n
How equity and stock options are taxed<\/h2>\n\n\n\n
Bottom line<\/h2>\n\n\n\n
\n\n\n\n