[lbotos]

So, they had 1000 shares, and said "if you pay $1000 (1/share) that these shares are now yours?

If so, and there is a gap between what you paid, and what your 409a says the value of the shares at purchase time, you owe tax on the difference, now.

And you are saying that the company also has an options contract to buy back those shares? why?

It feels like either this company is trying some advanced scenario with a bit of risk, or doesn't actually understand the value of options.

Why go through all of that when they could just give you options?

[hellcow]

This is what’s typically done for founders—it’s called reverse vesting where the company gradually loses the right to repurchase them over time. Generally this is done when the company is new, pre-409a.

There’s nice tax advantages to this approach if you make an 83b election since the shares start counting toward long-term capital gains immediately.

[lbotos]

Thanks! That does make a lot of sense for founders, but OP mentioned "the company sold him shares" which leads me to some sort of weird pseudo options thing. Hoping they can clear that up so I can understand more.

Reverse vesting seems way more straightforward: you sign, you get equity immediately, company can take back any at agreed upon price at whatever intervals defined in the contract.

[ska]

Right, and it avoids some tax issues later as you have owned and held them since you started (jurisdiction dependent).

Reverse vesting is pretty common for founding employees, or near then, also, ime. The only problem is if the share value isn’t justifiable very low, it can be too expensive.

The moment you raise any significant amount , the implied valuation may make this impractical.