[chimeracoder]

> Regarding stock options expiring 3 months after leaving the company, it doesn't have to be this way and a lot of startups are moving in the direction of 10 year exercise periods.

This requires converting all options to NSOs, and the tax implications of NSOs are not pretty. (From a tax perspective, ISOs aren't great[0], but they're much better for employees, by design).

[0] You have to pay AMT on the spread between the option price and current value at the time you exercise, whether or not the equity is liquid, so you could end up paying a large tax bill only to find that the company goes bankrupt before you have the opportunity to ever sell your equity.

[epa]

The kicker here is that the option life is 10 years, even if you have left the company. So you can avoid tax by not exercising until you plan to sell. It becomes a personal choice between 1) do i want the option still, even if i quit, and 2) do i plan to have ownership in the company for a period longer than a year before i sell. Typically most people would prefer 1 over 2.

Keep in mind for someone reading this comment, this is about private companies.

[beagle3]

The other thing to keep in mind is that stock options (especially those given to employees) tend to be much less protected than shares.

If you exercised, and another shareholder got unfair preferential treatment, you have reason to seek compensation or sue. If you haven't exercised yet, .... well ... not so much.

Also, many option contracts give you the right to buy X shares at price Y and do not make special consideration for stock splits - e.g. a 2:1 split would likely make your options worthless by halving the share price, and by halving the percentage of the company that X represents.

So, waiting to exercise until you sell is a very good strategy, except when it isn't - not very common, but you rarely get notified about these issues beforehand, especially if you are no longer involved with the company.

[ssalazar]

What are the tax implications of NSOs? ISOs are a pretty huge gamble, basically a lotto ticket, if you leave before a liquidity event occurs or is known to be on the near horizon.