[0xB31B1B]

its not done this way because the founders want to screw you, its done this way because of a bunch of arcane tax laws. Its complicated to explain, but the origin of all of these weird "options not equity" and "90 days to expire" type things are because of US tax law. If the startup could give you shares without putting the employee and the company both in a very puntantive tax situation they would.

[AlwaysBCoding]

This isn't true. Company executives don't owe a fiduciary duty to employees or holders of stock options in a company, they only owe a fiduciary duty to concrete shareholders. There are a lot of founders of less than high moral character who want to keep it this way.

I sent a Section 220 demand letter to the founders of this company to get transparency on the money that was taken during the secondary stock sale and they're currently fighting me on it because I wasn't a shareholder at the time the secondary sale took place, I only held options in the company at the time.

This anecdote is illustrating a real world situation in which it is being used as a way for founders to try to screw their employees, not because their hands are tied by some arcane tax law.

[indoordin0saur]

I'm pretty unknowledgeable when it comes to tax law but... If you're an employee at a series A start-up valued at $50 million and part of your annual salary pay package is being issued equity worth $100,000 do you have to pay tax on that immediately? If you can't cash out because there hasn't been a liquidity event how do you pay the tax?

[AlwaysBCoding]

you are issued equity in the form of stock options. Stock options give you the opportunity to buy stock in the company at a specific "strike price" enshrined as the fair market value of the company when you sign your offer letter.

you aren't actually vesting stock month to month you are vesting your stock options. when you "exercise" your stock options you pay the company the strike price * number of options you want to exercise in order to purchase the actual stock in the company.

If the company has grown in value since you joined then you would have a taxable event upon exercising your stock options because you are buying the stock at the strike price, but the fair market value of the stock is significantly higher, so that is a taxable capital gain that you have to deal with.

Any sane company will give you a 10-year exercise window after leaving the company to actually pull the trigger and "exercise" your stock options so that you don't incur a tax liability but some companies only give you three months. Which means not only do you have to front the cash to "exercise" the options, but you also have to pay the tax liability on the capital gain of stock for that year.

If you're asking how you can possibly be expected to pay the tax on a million dollar+ capital gain, without ever even having access to cash or a guarantee you even will have access to cash in the future, then welcome to the scam that is being an employee at a Silicon Valley startup and the fucked up logic of the US tax code.

[0xB31B1B]

my comment was a response to the comment above, complaining about options and exercise windows offering options, not what you're talking about WRT secondary sales and corporate privacy. The reason we have options and all this weird stuff is indeed tax law. Private companies do not grant equity because it is generally extremely tax disadvantaged to both the employee and the company itself. For instance, the 90 day window is a consequence of ISOs to NQOs, which has a direct tax consequence. I'm not arguing that 90 day exercise window is absolutely better than 10 year exercise window, im just saying that everything is downstream from tax and corporate law.