When working at a startup or publicly traded company, there are certain timeframes and milestones that you meet to receive your shares. Perhaps it’s a certain length of employment or you take action on your part to own the shares, like exercising options. Understanding your equity upon leaving (or staying at your company) is paramount to your financial picture.
What Happens to My Equity When I Leave the Company?
Whether leaving or staying there are three phases of equity ownership that you need to be aware of: common shares that are owned, vested but unexercised options (NSOs and ISOs), and unvested restricted stock, options (NSOs and ISOs), and RSUs.
Keep track of these as you work at your employer. Depending on the company you may have a portal or you might have to ask someone for the documents.
In the event that you are leaving your employer, it’s imperative that you know what kind of equity you own.
Common Shares
Common shares include restricted stock and RSUs that are vested or vested and exercised stock options. You own these shares outright because they vested over the required timeframe or you purchased them outright. There’s no confusion about your equity upon leaving. The next two categories can get a little fuzzy.
Vested but Unexercised Options
Vested and unexercised options require a decision. When you are working for the company, you have time to decide what to do. But if you are leaving or have left the business, you have the choice to purchase the options during the post termination exercise window (“PTEW”).
The post exercise termination window is a time frame that can vary depending on your situation. If you have ISOs, the PTEW is 90 days and this is not flexible because it is an IRS rule. On the other hand, if you have NSOs, the PTEW can vary and be as long as 10 years. The length of time is detailed in your employment documents.
If you don’t exercise the options (ISOs or NSOs) by the end of the window, you forfeit the shares back to the company.
Unvested Restricted Stock, Options, and RSUs
Any unvested equity, including 83(b) restricted stock and early exercised options are relinquished to the company.
Unvested and unowned equity is simply forfeited. Pretty straightforward.
This category is sad because you surrender this sleeve of equity upon leaving.
Your Homework
Companies are not required to give you guidance on the types of equity and what to do with them. It’s a wonderful idea to understand the composition of your equity and what you own – whether you are leaving the company or not.