Discuss // Questions about stock options in a Canadian startup
Questions about stock options in a Canadian startup
I'm in the unfortunate position where I may be getting laid off at a startup I'm at because we are running out of money. I will have a reasonable (not huge) number of options that will have vested. I can't seem to find the answer to some questions online, so I'm going to try here.
Note: This is a private Canadian company, and I'm a Canadian citizen. So this needs to apply to here and not U.S. laws.
Will I have to exercise my options within 90 days after I'm laid off? If so, that is going to be around $12,000 (strike price is $1) that I would have to pay out of pocket. I just don't have that, because I've kept my salary as low as I can afford.
Will I have to pay taxes on them, even if I haven't made any capital gains yet?
If I don't exercise them, will the options disappear? I know this is the case with public companies.
I'm hoping somebody here has faced the same situation and will know definitively.
Financial industry executive who is now writing software.
Without any additional background of the company in question, I will just make the suggestion that exercising options on a company that is running out of money and had to lay you off might not be the best idea.
First step is to read your option grant letter carefully, both of these
questions should be specifically answered in that letter.
- Will I have to exercise my options within 90 days after I'm laid off?
- If I don't exercise them, will the options disappear? I know this is
the case with public companies.
Will I have to pay taxes on them, even if I haven't made any capital gains
yet? speak with your tax adviser, laws differ significantly
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What options???? Startups dontreally have stock of any value. Options dont mean anything until the company actually is sold or acquired or someone buys you out.
It looks like this startup can't pay its bills and/or has already gotten what it needed from you and your skills and is "laying you off" as unneeded cost. Given that reality, I'd ask for whatever the cash value of the options are, if any and take that.
Advisor, co-founder, consultant and part time executive to Tech Start-ups. Based in Silicon Valley.
I live in Silicon Valley not in Canada so I cannot speak to differences between the two countries legal systems however in general these questions can be answered only by looking at the specifics of your offering documents and by the fact that when you leave the company the company can amend them in your favor if it so chooses.
1a) Generally you will have a limited time to exercise vested shares after leaving a company, and yes, the options will expire at that time if not exercised. But as I said, if you are valuable and the company wants your goodwill, in the severance package they could amend the expiration date. This might or might not change the nature of the stock options and tax treatment since you will no longer be an employee.
1b) If the shares are publicly trading at above the strike price, you can take your options to a broker who will exercise them and sell them to cover the strike price, and you will get the difference. There will also be taxes immediately due on the transaction (and they will be "ordinary income" not "capital gains" in the U.S., but check your local tax law. If the stock is not public you may have to borrow to get the stock. If the company is not doing well this might not be something you want to buy now.
2) yes, generally when you exercise your stock option that may be a taxable event. I don't know if Canada looks at the difference between the strike price and market price as immediately due (the U.S. does). But if your company is laying off people it's likely the stock price has gone down, not up, and it's even possible that the market value of the stock today is lower than the strike price. In this case you would have an immediate capital loss.
3) Yes, once the option expires, it is really expired. But again, you can always ask for a new one.
When companies lay people off, they generally offer a severance package - sign and agreement not to sue us or bad mouth us and we will give you the severance package. These packages are negotiable. If you want new options that don't expire for a year, ask for them. The more valuable your agreement is to them the better the terms you can get.
[removed to protect privacy],
Sent from my iPhone
Mar 21, 2016
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