[dragonwriter]

> If you use your options and the company goes under before IPO, are you effectively shit-out-of-luck?

"Goes Under" can mean different things, if it is failing and bought out, you get whatever it is bought for.

If it is dissolved (either in bankruptcy or otherwise), you get whatever the claim against assets in dissolution provided by your shares entitles you to -- which in bankruptcy is likely nothing, because creditors come first, and if there was going to be something left after that, the firm wouldn't be dismantled in bankruptcy.

> Seems like you would get $0 for the shares but already paid taxes on them.

I'm pretty sure you'd have a capital loss from the difference between the value finally realized from the shares and the price at exercise, which is applied against any other capital gains in the same year (and, with limits, against other income, with the excess carrying over to the next year, etc.)

[mschuster91]

> which in bankruptcy is likely nothing, because creditors come first, and if there was going to be something left after that, the firm wouldn't be dismantled in bankruptcy.

Bankruptcy might also be caused by a few debtors being excessively late in payments, and you have your own debts to pay.

If e.g. my debt of 10K is due at 30.07., and I have 100K outstanding from my customers (and not enough cash flow/reserves to cover), then by 30.07. I am bankrupt, and it may well happen that at 30.08. my debtors pay the 100K - but then it is too late for me.