Your stock options may be vested or unvested. If you have unvested shares, the IPO usually won’t change the vesting schedule – although sometimes the IPO deal involves immediate vesting of options as part of the transaction.
Can you buy options before IPO?
A common strategy is exercising options six months before the IPO, which starts your stock holding period. Assuming a six-month lockup, any stock you sell thereafter will be taxed as a long-term gain, as you have now held the stock for one year.
Should I exercise ISO before IPO?
Because these shares can be more difficult to liquidate, meaning you may incur a tax liability upon exercise without being able to sell some of the shares you purchased to pay your tax bill. So, by exercising your pre-IPO ISOs, you can potentially increase the overall amount of taxes you owe.
What happens to my stock options if my company goes public?
Companies going public with a direct listing bypass the lockup period, meaning employees can sell their stock options right away if they choose. A lockup period can range from 90 to 180 days. A stock price may also drop when the blackout period expires, as insiders sell shares to get the cash.
What should I know about my pre IPO stock?
If you choose to exercise pre-IPO, the estimated value of the stock you purchase is likely based on the most recent assessment of your company’s fair value, which is calculated periodically. You’ll likely need to wait until the next valuation to know whether or not the stock price is up or down, and whether or your exercise was a good decision.
What happens to stock options when they vest?
Once your options vest, you have the ability to exercise them. This means you can actually buy shares of company stock. Until you exercise, your options do not have any real value. The price that you will pay for those options is set in the contract that you signed when you started.
What happens to stock options when a company goes public?
Exercising your stock options prior to the IPO Most companies offer the opportunity for their employees to exercise their stock options before they are fully vested. If you decide to leave the company prior to being fully vested then your employer buys back your unvested stock at your exercise price.
When to exercise stock options after lock up period?
Once your shares vest (assuming you are past the lock-up period) you can look at the market price of the stock vs the exercise (or strike) price of your options. This can help you determine if you want to exercise or not. Again, there are tax consequences so it is important to work with your financial advisor and CPA first.
