[givemeethekeys]

OP: I read your message a couple of times over and am assuming that you own the millions in stocks outright (and not options).

I'm also going to assume that, you're asking us for advice because you don't have the cash to pay a lawyer for a couple of hours of their time ;)

In this case, I suggest reading the OG literature: https://www.sec.gov/reportspubs/investor-publications/invest...

Find out if the state where your company is registered has rules that'll help you learn one way or another.

Personally, I think it's very fishy that a company would be allowed to sell a non-employee shares that they can't resell to someone else - I suspect that language in the options agreement is illegal.

Perhaps it is possible to sell your shares to the people "as is" - make it their problem, along with a full disclosure of the original options / stock sale agreement.

In any case, you'll need a competent lawyer's help in interpreting the options agreement, and the resale agreement, since the company is still private, so uhh... find the money to pay a lawyer.

[BaseballPhysics]

> Personally, I think it's very fishy that a company would be allowed to sell a non-employee shares that they can't resell to someone else - I suspect that language in the options agreement is illegal.

This is absolutely wrong.

First, you're assuming they weren't an employee but they likely were when they exercised their options. Most likely they chose to leave and had vested options they had to either exercise or give up. It's quite a common situation and one I've personally witnessed.

Second, non-transferrance clauses for shares in private companies is quite common.

[stock-throwaway]

To clarify, yes I own the shares outright.

I believe non-transferability clauses are common these days, ever since some shenanigans with employees selling shares ahead of the AirBnB IPO.

But does it hold up in court? It seems bizarre that I can "own" something and yet have no rights that people typically associate with owning something.

[BaseballPhysics]

Well, it might seem weird to you, but unfortunately it's not.

Private company shares aren't furniture. They aren't physical property and they don't come with traditional resale rights.

In buying those shares you signed a contract that came with stipulations. One of those stipulations is that you cannot transfer ownership to anyone else. It's perfectly normal and very common.

I just hope you're not realizing this for the first time, now, after you already laid out the capital to exercise those options.

[stock-throwaway]

Do you think this is common knowledge though?

I'm pretty sure all YC companies have limited transferability clauses now.

And with the rise of IPO-scale private fundraising, it's possible that a company can remain private literally forever.

This changes the calculus for a young person considering joining early at a startup and I'm not sure that is a good thing for the startup ecosystem.

[BaseballPhysics]

Honestly, I know the horse is waaay out of the barn for you, but anyone considering laying out 100k+ on an asset should consult a lawyer and/or an accountant and just assume they don't know shit.

You don't need "common knowledge". You just need to know enough to know you don't know and need to consult folks who do.

> And with the rise of IPO-scale private fundraising, it's possible that a company can remain private literally forever.

Disagree.

Investors always want an exit. They don't put cash in out of the goodness of their hearts.

Yes they're willing to wait a lot longer and put up a lot more cash, but ultimately they're looking for their 10x, and that means an IPO or acquisition.

That said, speaking for myself, it was over ten years from founding to exit. So yeah, you gotta be prepared to wait a while if you opt for equity over base pay.

[stock-throwaway]

Investors don't have transfer restrictions on preferred shares!!

Only employees have transfer restrictions because they have common shares.

Investors can sell on secondary markets whenever they want, and for the company in question -- they are!

[givemeethekeys]

I disagree. If you're a private company, it means that you don't owe anyone outside your company details on your financial performance, and that your shares aren't floated.

But if you, the private company, sold a percentage of your property to someone, then that someone most definitely has the right to sell their shares to someone else. You the private company still don't have to disclose your financials to anyone.

I think any non-transferability agreement is pure bullshit. I feel bad that OP has to now fight to get whats already his.

[BaseballPhysics]

> I think any non-transferability agreement is pure bullshit.

I feel that way about a lot of things. For example, I feel like forced arbitration clauses should be unenforceable.

But what I feel and what is legal aren't the same things, and when laying out a huge chunk of capital, it's important to understand the difference.

[givemeethekeys]

Yeah, I think you're correct about that part. Perhaps rights were signed away - lawyers rejoice.

[biotechbio]

It’s fairly common for private companies to have non-transferability clauses for both options and stock.

IANAL, but this sounds pretty standard and I doubt OP will be able to fight the legitimacy of the claim. Re: a forward sale, sounds like it blatantly violates the agreement and would expose OP to some obvious risks. Agreed OP should talk to a lawyer.

Is anyone else surprised by OP’s indignation? Startups are risky, options aren’t a guaranteed payday, exercising is gamble, and liquidity events are regulated for a reason. Sometimes you lose money. Have we forgotten this?

[stock-throwaway]

> Startups are risky, options aren’t a guaranteed payday, exercising is gamble, and liquidity events are regulated for a reason. Sometimes you lose money. Have we forgotten this?

I spent around $100k to purchase this stock and paid tax on the gain. They are now worth millions of dollars on the open market, but the company will not allow me to sell them... I understand it's risky, but at this point they just aren't letting me get a payday...

[BaseballPhysics]

> They are now worth millions of dollars on the open market

No, they aren't, because there is no open market for private company shares.

You have a private company valuation you can base the share price on, but that's it. And even that is typically based on black magic and accounting tricks since, at the risk of repeating myself, there's no open market in which those shares are trading and thus no method for price discovery.

And any theoretical transfer of ownership would occur in a private transaction or on a private marketplace that specializes in matching buyers and sellers in private company shares.

<chopped this bit out since the dead horse is beaten>

Edit: And to provide something a bit more constructive, here: unless some lawyer comes up with something clever--and certainly it's worth exploring your options--my bet is your only real move is to just hold onto those shares and wait.

Eventually there may be a liquidity event--probably an acquisition--and hopefully you'll net out positive. You basically bought a 100k lottery ticket. I suspect all you can do now is move on and hope it pays off.

[stock-throwaway]

>> They are now worth millions of dollars on the open market

> No, they aren't, because there is no open market for private company shares.

I do have offers to purchase my stock. In a bygone era, I could simply instruct the company to transfer my shares and broker the transaction myself.

I get what you're saying though.

The purpose of my post here isn't to complain so much as inquire about people who have executed forward sales and are willing to speak about the experience. From what I understand, this is being done quite a bit and I guess the idea is that company never has to find out...

Edit: formating

[dragonwriter]

> I spent around $100k to purchase this stock and paid tax on the gain.

Yes, that’s how options exercises work.

> They are now worth millions of dollars on the open market, but the company will not allow me to sell them...

But you were prrsumably aware of that limitation when you entered into the agreement under which you purchased them (if you dispute that that is the agreement you agreed to, thebmn, definitely, you need a lawyer.) So, even insofar as you describe the “open market” accurately, that market isn’t open to you.

> I understand it's risky, but at this point they just aren't letting me get a payday...

Perhaps not. Are they obligated to let you get a payday? Is it in their interests to do so? If neither of those is the case, why do you expect they would?

[stock-throwaway]

Yes, you're totally right.

Trying to take this in a more constructive direction though: what happens if I go bankrupt? I have no idea how all of that works, but I can imagine a judge saying this limited transferability clause isn't legal or something. How can I go bankrupt when I kinda-sorta own millions of dollars worth of company stock?

[dragonwriter]

> Trying to take this in a more constructive direction though: what happens if I go bankrupt?

If that is an important real consideration, you should consult an attorney; my general understanding, whixh yoi should not rely on, is that non-transferrability clauses mostly are not enforceable in bankruptcy, with some particular exceptions.

[stock-throwaway]

It's a theoretical question, and I'm not trying to be annoying here, just genuinely curious.

If this stock is non-transferable, does that mean it has an inherent value of zero? Does that mean I can file for bankruptcy and still keep the stock? I just feel like the nature of property rights in this country doesn't square with transferability restrictions. :shrug:

[BaseballPhysics]

> Is anyone else surprised by OP’s indignation?

I absolutely am, and got downvoted for saying so.

[dragonwriter]

> Personally, I think it's very fishy that a company would be allowed to sell a non-employee shares that they can't resell to someone else

OP explicitly says they were an employee and had to exercise options when (implicitly, immediately before) they left not to lose them, so this isn’t an issue of sale to a non-employee.

[givemeethekeys]

When they left, they had a certain amount of time to exercise. So, it needn't be that they were still with the company when they exercised the options.