[brianfitz]

It's done in order to start the clock early for capital gains. If you excercise shares at the same time you sell them, that transaction is treated as regular income. If you excercise the shares early by purchasing them, then they can be taxed at the lower capital gains rate down the road. There was a response in the thread that asked if this is fair -- to that I would answer that when the purchase is handled as a loan, it is a real liability to the employee (usually the CEO or founder). If the company tanks or the clock ticks too long for a liquidity event, the note has to be paid. So this could be a very risky proposition for an average employee, even it were offered.

[scurvy]

If you're a founder, why wouldn't you 83B all of your shares right away when they're worth $.0000001 per share?

[siberianbear]

83B is for grants of restricted stock, not for stock options.

[scurvy]

Understand that but as a founder, why would you give yourself options over stock? It's your company. That makes no sense. You need to pay in capital in some form.

[dkfmn]

The key is that you need to align incentives for employees, investors, etc by demonstrating a long-term commitment to the company. Lots of more nuanced discussions of this topic exist but here's one I have at hand: http://startupclass.samaltman.com/courses/lec18/

[brianfitz]

They likely were giving her additional grants later in the life of the company upon reaching certain milestones to make up for her dilution at a strike price that required millions of dollars to exercise. You can get away with founder stock very early on, but at some point, it becomes untenable as the value of the company grows.

[sjg007]

Recourse is only the stock though right? So it's not really a loan but more of a gift... I'm surprised Congress, the IRS, or the SEC allows it. Especially as a tax dodge.

[gleb]

No. She is on the hook for the money. It's a huge liability. AFAIK, that's the only way IRS allows this.

[jstandard]

I've never heard it phrased as "exercising shares". Do you actually mean exercising options to convert them to shares?