I read down pretty far and did not see this basic advice: you need a lawyer. Hire a very good one: they are cheaper than poor lawyers by an order of magnitude.

That lawyer will review your agreements, the state laws and the communications with the company and tell you where you’re at. You could all go in together for the lawyer btw if you have the same contract.

I bet that lawyer will tell you (if this is in California) that you just need to send a letter saying “cool guys, send the shares, I’ll worry about the taxes. I don’t consent to forfeiture.” But, crucially, I am not a lawyer and I haven’t read your agreements.

anyway I would not stress over this, but I would act quickly, don’t sign anything, don’t communicate with the company unt you’ve talked to the lawyer, and know that worst case you will be able to find a loan to bridge this. It may actually be a good candidate for a venture debt firm, but either way the lawyer you hire will probably have some leads.

Congrats on the IPO!

This is sad and surprising.

I’ve been through so many shenanigans during my previous life as a naive startup employee: paid huge amounts of AMT (which took years to recoup via AMT credits), was not offered 83b election, had to write huge checks to exercise ISO, had to pay taxes when exercising NSO, etc., but I had never heard of a company threatening to forfeit the RSU if tax is not wired to them, it’s simply wild, especially when the liquidity is so close.

If I was in your shoes and the amount was substantial, I’d consult a lawyer. I hired one to help me facilitate a secondary sale transaction contract and it cost me $4k, money well spent. Tons of them in the Bay Area.

I would truly love to know how this will end up for you.

A few things -

First, What's your end goal here? Is it to not forfeit the RSU's? Is it to not pay the taxes upfront? etc

You ask a lot of "is this normal questions", but it sort of doesn't matter if it's normal if you want something else.

Maybe the answers affect the chances of getting that something else, but it's really hard to give advice without knowing what you actually want to achieve.

It will quickly become a sort of academic discussion.

At the end you say you want to explore "potential solutions" - but can we start with what you want the outcome to be, actually?

Second, you say you want to "engage in a conversation with the company to explore potential solutions". Uh, okay.

Right now you have 30 days. Best case, assuming you don't have to do something before then, notification wise. Do you have meaningful legal representation?

If not, will you go that far, assuming the company offers you absolutely nothing? Or doesn't even bother to respond?

If you don't have lawyers, but are planning on going that far, you don't have a huge amount of time to get them and have them help.

Even if you aren't, you are veering quickly into territory where it sounds like you need more than just a bunch of questions answered by smart people on the internet.

You should strongly consider professional advice here, if for no other reason than the ability to have a live conversation about this.

This isn't idle internet curiosity, it sounds like it actually matters to y'all.

> We are curious if this type of distinction between current and former employees is typical for post-IPO RSU settlements.

I'm watching this thread, but just as a reminder that it benefits the company to be as vague and complicated as possible for ex-employees trying to exercise their equity rights. You and your equity are effectively dead weight to the company now and it's in their best interest to get you to forfeit as much as possible. The best time to cash in your equity is always when you are still an employee.

Most RSUs have a time and liquidity vesting. The latter triggers on IPO. If your company didn’t follow that convention, they went out of their way to screw you [1]. (RSUs are generally a worse deal than IPOs. They’re a great deal for companies, which is why Andreessen et al push them.)

> current employees have access to a sell-to-cover option, while former employees are required to prepay in cash

This is common. Cashless sales are a benefit. We strictly regulate who can and cannot be provided employee benefits in America. Your former employer would risk extending a securities-based loan to you. It can be done. Your former employer decided not to extend the privilege.

[1] Find the IPO pitch materials and see if the bankers pitch anti-dilution post IPO.

I'm not understanding the situation. When I had RSUs as an employee, those grants were voided at separation. I only got to keep the RSUs that had vested before separation (which were then just common stock and that I had paid taxes on at vesting.)

Are you saying your former employer let you keep your unvested RSUs which subsequently vested at the IPO? (I've never heard of anyone getting to keep their unvested grants after separation.) Or were you still an employee during the IPO and left the company between then and now?

A question perhaps to help anybody else who finds themselves in this situation...

If one doesn't have the cash to prepay the taxes, where do you find a short-term lender for this?

Let's say your RSUs are worth $1M and you need to pay $220k in taxes in March, but you won't be able to sell the shares until a few months later.

In theory the $1M in public company stock seems like a fine collateral. But in practice, a recent IPO's stock can fluctuate drastically. Maybe they announce bad results in April, the stock goes down 50%, and you already paid taxes on $1M but now it's only worth $500k. An ordinary bank probably won't loan you the $220k with such a high risk collateral (I might be wrong).

If banks or rich friends are not an option, where do you get the $220k? Second mortgage on your home?

I am fairly confident that you have strong legal protections against forfeiture of your RSUs under these circumstances, especially if you worked in California. Unless there is an explicit clause in your employment contract where you agree to this (fairly unusual) tax prepayment scheme, your RSUs are earned income.

IANAL, but I have been around the startup scene long enough to immediately spot the red flags here. It seems like there is an explicit strategy at play here to discourage former employees from exercising RSUs, and you will likely find a strong legal argument against these terms (i.e. prepayment and forfeiture) unless you explicitly agreed to them. To echo what will probably be stated at least a hundred times on this thread - talk to an attorney.

@jameskuang correction: March 15, 2025 is 140 days from the IPO day. This is before the lockup periods ends and is used to determine the fair market value of the stock that taxes are calculated. If the stock drops dramatically between March 15th and the end of the lockup period, ex-employees could lose money (more cash tax is paid than the value the stock can be sold).

Are you in the US? Because what you're describing doesn't sound like how it would work in the US.

When the company IPOs, your vested shares would immediately vest into actual shares. At that point, you would be taxed and awarded a W-2. This is non-negotiable, and this is something that the company would be forced to handle. The idea that you have a lingering tax payment due before lockout period expires doesn't make sense to me. Your RSUs are now shares and when that conversion occurred on IPO date, you would have been taxed. You own no more tax until you sell your shares.

Wait - there’s a lot of assumptions being made in this thread. Is everyone you’re referring to a former employee? Are you sure you had RSUs, proper, as opposed to options?

If you have options, this is entirely because of the different treatment between ISOs and NSOs.

Is it possible you thought you had RSUs but instead had options?

The requirement to prepay taxes in cash and the forfeiture clause are both highly uncommon.

Employees typically rely on the company to handle tax withholding, rather than manually calculating and prepaying.

Seeking professional legal and tax guidance is recommended, and a collective approach could strengthen your position.

Get a lawyer. Get an accountant. Ensure they have experience in the relevant jurisdictions (yours, and your former company’s). Realize there is a risk to be borne here, by someone, and you should expect to either bear it, or pay someone else to.

Why don't you wait it out. You can't gain much going against the org, they have all the leverage and there typically are enough terms to allow the startup to even take them from you citing x,y,z. Just wait it out - it's just a question of a few months. As for the tax piece, if you think there will be enough upside - make the demanded payment. Think logically minus the emotions.

re #3, if your RSU windfall is substantially large, you might be eligible for the 100%/110% safe harbor that won't penalize you for tax underpayments (assuming you are a US taxpayer)

e.g., you make $200K in 2024 and $5 million in 2025 (which includes the RSU windfall). Assuming you pay at least 110% of what you paid in taxes in 2024 in 2025, you need not pay estimated tax or anything beyond statutory withholding amounts on the RSU windfall, and can just make up the 6 or 7 figures of tax owed at tax settlement time (e.g., by April 15/16 after the tax year in question). This is the optimal strategy, you can just park the money for tax owed in a close to as risk-free investment as possible in the meantime.

Statutory withholding rates might be higher; e.g., at my employer, if your RSU earnings are below $1 million, you can set your federal withholding as low as 22%. If your earnings are above $1 million, you are stuck with the 37% mandatory federal withholding rate (both done by sell to cover). This does not include per-state withholding minima, which can vary widely.

Went through the Twilio IPO, I can give feedback based on my experience. IANAL and all that.

1. I've never heard of that from a tech company IPO. Twilio did sell-to-cover fwiw.

2. Does your RSU contract/letter say something about that? I'd maybe check with a lawyer and see if they can even do that. I would have imagined that in this scenario, the company gives you the RSUs and leaves you to figure out paying the IRS yourself.

3. That sounds absurd, I never had to do that. Tech companies that reach IPO typically have an HR department that handles all this for you, but I mean yours clearly doesn't I guess. I don't know what, if any, obligation employers actually have legally in this regard. Again, I'd check with a lawyer.

4. Hmm, I was a current employee during my IPO experience, so don't know how former employees were handled. I'm guessing though that they were also given sell-to-cover option. I'm pretty sure the stock broker the company used (I think it was ETrade) just handled all that for the company, including showing us how much was sold to cover as things vested, and locking current employees during quiet periods.

Good luck, hope that helps a bit in terms of at least validating your sanity that this probably isn't normal.

> We are wondering if this approach—requiring a direct tax prepayment—is standard practice.

Yes. source: I went through an IPO. 2 friends at different companies had similar experiences.

> If we underpay, we need to send more money within one business day. If we overpay, we have to apply for a tax refund later. We’re wondering how companies typically help employees navigate tax prepayment for RSUs.

(double check this), but I think as long as you pay 110% of your tax obligation of last year, thats all you need to do. source: https://www.hrblock.com/tax-center/irs/tax-responsibilities/...

> We understand that current employees have access to a sell-to-cover option, while former employees are required to prepay in cash. We are curious if this type of distinction between current and former employees is typical for post-IPO RSU settlements.

Do the current employees have "withhold to cover" or "sell to cover"? My understanding is current employees would not be able to sell their stock during a blackout or lockup period, but the company can legally withhold them.

I've never had RSUs as an ex-employee. But as a current employee I've seen net share withholding and sell to cover. With net share withholding, the company figures your witholding %, issues you the net shares after withholding and pays the withholding from cash. A new IPO company may prefer to use its cash for other things.

Given that there's one month until the date, and stock plan stuff always takes a while, it's probably too late to ask them to change their plan.

I think you should be able to finance this withholding, most likely, you'll be able to pay back the loan once the RSUs are tradable, about 30 days later. If the stock drops too far though, you'll need to sell the stock, and then marry someone with a lot of capital gains to cancel out, and have your new spouse help pay back your loan :P

On point 3 specifically: I work for a FAANG, and the employees need to nominate the percentage the company should sell-to-cover, they don't figure it out for you. If you're no longer employed by the company I don't know _how_ they'd figure it out. If RSUs are still W-2 income for a former employee (I don't know this?) it's the extra tax you'd pay on that much income - for me I estimate using the tax bracket it'll pull me into, plus any other applicable federal taxes (medicare, additional medicare, social security). They may need you to cover state taxes as well?

I'm not an accountant, you shouldn't rely on this post, and I don't know if/how you might get screwed on the other points.

Don’t take any advice here without talking to an experienced accountant

A side note.

It was 2006 when I joined Wikia (Fandom).

I was being paid $850 per month, but I also received a piece of paper promising me shares worth of $15,000.

It felt like a good chunk of money. But then I asked myself few questions:

(a) being an Elbonian citizen, how do I enforce this contract?

(b) how much would it it cost me to enforce this contract?

(c) even if I receive these shares and the company would not go IPO what am I it?

Shortly after I quit and left that piece of paper on my desk in the office.

> The company has stated that if we do not prepay the taxes by March 15, 2025, the RSUs will be permanently forfeited

Is it clear whether you'd forfeit your entire grant, or just some subset of shares that would correspond to a tax/withholding percentage?

I don't know if the details are the same, but Uber pulled some last minute changes on how taxes were calculated right before IPO too.

Can someone just name the company, cause there is enfough information here that it’s not hard to figure out.

I hate this shit because you are inevitably in the worst possible position in terms of not only power, but information. But ultimately your shares are not worthless, so this must be a positive thing, and I keep a small portfolio of worthless company shares on the wall to remind me.

1. Unfortunately yes I have heard of this. It sucks and if they don't allow you to sell to cover you should be able to find a lender - I would start by going to a brokerage and talking to your broker. I would imagine if you purchased a short position (a PUT option to sell the same number of shares you will be owning) then you can convince them with enough documentation and maybe some kind of escrow or custodial account to effect it.

2. Then you need a lawyer and a brokerage.

3. An accountant, lawyer and brokerage. Again, this is the good scenario (shares are not worthless)

4. Since you said it was public, try your brokerage first. There are options for private companies in this space as well. There are definitely lenders who will help you out here.

If you just wanted to get the whole thing over with I would find someone willing to lend the money against the shares, again if this is a publicly listed security and you can purchase the PUTs then your brokerage should be able to loan against the shares to pay the taxes, you escrow the shares and they loan the money and then shares go into escrow and you have the PUT options so you can treat those shares as cash with your brokerage.

This seems like a great way to get people that don’t have cash on hand to pre-pay the taxes to forfeit their RSUs.

Hope to see some folks with similar experience, like former employees from Uber, to share their stories.

Same shoes. Desperate for expert advice who has experienced this saga.

Same. To answer some of the comments, I am sure that I have the RSUs instead of options. The offer letter said so, the RSU agreement letter said so, and the esop platform said so too.

Got the same situation, ex-employee from a similar startup that IPO'ed in 11/2024, does it make more sense to borrow money from some loaner or file a lawsuit to these guys?

You need a lawyer, obviously. Probably from a big corporate law firm. One who's been around IPOs before. Those are easy to find in Silicon Valley, but scarce outside major cities.

1. Never heard of having to wire taxes as a condition of receiving stock owed to you. Your taxes are between you and the IRS. Sell-to-cover should be considered standard if the stock is liquid. Any reputable company working with any reputable broker should be able to manage it.

2. Lawyer

3. Ridiculous. Lawyer

4. So they can do sell-to-cover, they just don't want to for some reason.

If the equity amounts to a significant amount of money, you would probably benefit from consulting your own attorney. Don't take advice on an internet forum and definitely don't accept "Trust Me Bro" from the company. Good luck.

Same question here！

same question

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Same question here