We allow early-exercise too but I (possibly, incorrectly) assumed that this was the standard for newly incorporated startups - at least within the last 2-3 years it has become significantly more common.
"secondary sales restricted only by a short right-of-first-refusal period"
I really like this as well, I've always found it confusing when private companies are anti-secondary for former employees especially. I'll look into adding something like this to our stock plan, ROFR protects against any hostile take over weirdness and I'm confident we could add something like this to make it relatively easy to sell on secondary under a certain % threshold.
Early exercise is purchasing shares before your options vest, making you a shareholder sooner and solving a bunch of tax issues. The company retains the right (basically the obligation) to repurchase any unvested shares should you leave the company before fully vesting.
Not a restriction of the 83b election but a restriction of when you can exercise. Without early exercise you are stuck exercising as you vest so there’s more likely to be a taxable spread between your option strike price and the value of the stock. With early exercise you are exercising and making the 83b election when there’s no taxable spread.
What would this even look like? An 83b election is something I file with the IRS. Are you suggesting a company might have me sign a contract committing me to not file an 83b election?
How would they ever find out if I did file, and why would they care?
My understanding is that 83b applies to stock, not options, so you have to first exercise the options and hold unvested stock. That requires early exercise.
It's been a possibility in my options contracts. However, the company must agree to it, cash your exercise check, and send the necessary paperwork to the IRS. If they choose not to cooperate, you're out of luck.
I think there's a confusion between the related events. Filing the 83(b) form with the IRS is between you and the IRS. Company isn't involved so not something they can restrict.
However, filing that 83(b) only makes any sense if you are allowed to early exercise and that is indeed entirely up to the company. So if they don't let you early exercise you also won't be filing the 83(b).
Pro tip: Never join a startup that does not let you early exercise!!
Yes i assumed parent was referring to early exercise but maybe i misread. Imo early exercise doesn’t make a ton of sense when the company no longer qualifies for qsbs especially if long exercise window is offered so probably why it’s not offered - to avoid a ton of drama later on
Sorry, separate concepts executed at separate times.
Early exercise (yep, 83b in the US) when options are issued then allowing employees to sell shares down the road, outside of fundraising events (Forge, EquityZen, sales to angel SPVs, etc.).
"secondary sales restricted only by a short right-of-first-refusal period"
I really like this as well, I've always found it confusing when private companies are anti-secondary for former employees especially. I'll look into adding something like this to our stock plan, ROFR protects against any hostile take over weirdness and I'm confident we could add something like this to make it relatively easy to sell on secondary under a certain % threshold.