Sage-Tips

What happens when a pre-IPO company is acquired?

In this situation, which is more common in smaller and pre-IPO deals, your rights under the agreements do not transfer to the buyer. Your company as a legal entity will eventually liquidate, distributing any property (e.g. cash).

What happens to stock options if company gets acquired?

If the acquiring company decides to give you company shares, either you will receive publicly traded shares, and your situation will mimic the IPO outcome, or if acquired by a private company, you will receive private shares and you will be back in the same situation as before: waiting for liquidity.

What happens to unvested stock options after IPO?

Your stock options may be vested or unvested. If you have unvested shares, the IPO usually won’t change the vesting schedule – although sometimes the IPO deal involves immediate vesting of options as part of the transaction. If you have vested options, you’ll need to determine when to exercise them.

What happens to options in an IPO?

Going IPO Means Your Stock (Options) Can Actually be Money Now. As long as your company is private, all those options (and company stock, if you’ve exercised) are usually worth nothing. There’s no market for it. The only “person” you can sell the stock to is the company itself.

How do pre-IPO stock options work?

If the company is pre-IPO, you don’t have the option to sell your shares unless you go through a third-party service like EquityZen. If the company just IPO’d, you’re likely subject to a 90-180 day lock-up period where you can’t sell either.

Can you exercise options after IPO?

So if you wait to exercise until your company starts the IPO process, it not only gives you the most certainty that your shares will be worth more than your strike price, but it also may allow you to sell your options as soon as possible while still qualifying for the long-terms capital gains tax.

What happens to options when IPO?

When should you exercise before an IPO?

Lockup periods can vary but typically span six months post-offering. A common strategy is exercising options six months before the IPO, which starts your stock holding period. Assuming a six-month lockup, any stock you sell thereafter will be taxed as a long-term gain, as you have now held the stock for one year.

Should I exercise my options pre-IPO?

Wait until the Initial Public Offering (IPO) to exercise your stock options and pay ~51\% in taxes once you sell your equity… Exercise your stock options before the IPO and only pay ~35\% in taxes. So if you exercise now, you can have that tax savings unlocked by the time you can finally sell your shares after the IPO.

Should I exercise my stock options before or after an IPO?

Depending on what type of stock option you have ( ISOs vs NQSOs) and how long you end up holding the shares for, exercising before the IPO could mean you pay less in taxes later. This could happen if the market value of the shares when you exercise before the IPO is less than the value once the stock is publicly traded.

What are pre-IPO shares and should you buy them?

In contrast, pre-IPO shares don’t trade on the open market, and therefore may not have a readily defined price. If you choose to exercise pre-IPO, the estimated value of the stock you purchase is likely based on the most recent assessment of your company’s fair value, which is calculated periodically.

What happens to stock options when a company goes public?

The biggest surprise for employees with stock options at pre-IPO companies is often the amount of taxes they need to pay when their company goes public or is acquired. When they exercise their options after the IPO or as part of the acquisition, selling the stock at the same time, a large chunk of their proceeds goes to pay federal and state taxes.

What is the exercise or strike price of stock options?

The exercise or strike price is what you’d pay to buy the stock or exercise your award. Incentive stock options, stock appreciation rights, and non-qualified stock options are common examples. If your grant is underwater, the acquiring company may not want to be so generous, as even vested shares are technically worthless.