Ask HN: Former employees' RSUs at risk after startup's IPO

Hacker News Discussion ↗

Unusual RSU / Tax Structure Described

  • Former employees with time-vested but not yet settled RSUs face a “double trigger”: full vesting at IPO, but share delivery postponed to a 2025 settlement date.
  • Company requires ex-employees to wire cash to cover maximum withholding (top marginal rates) by that date; otherwise all vested RSUs are forfeited.
  • Current employees get sell‑to‑cover (or net withholding), so they don’t need to front cash; former employees do not.
  • Many commenters say they’ve never seen a forfeiture‑if‑no‑cash structure for post‑IPO RSUs and find it “wild” and “shady,” though a few say cash prepayment itself is not unheard of.

Company Motives and Fairness Debate

  • One camp: companies deliberately make ex‑employee equity confusing and burdensome; ex‑employees are “dead weight,” and forfeiture is in the company’s interest.
  • Another camp: much of the complexity is driven by securities, tax, and regulatory constraints; companies may be overly conservative rather than malicious.
  • Several note that treating current vs former employees differently is common, but here the chosen method is unusually hostile.

Legal and Tax Mechanics Highlighted

  • RSUs are wage income; issuer must withhold. Typical methods:
    • employee prepays cash,
    • net share withholding, or
    • sell‑to‑cover.
  • Commenters stress the risk of “phantom income”: paying large tax on a high valuation before lockup, then watching the stock crater.
  • Some discuss safe‑harbor rules and supplemental wage withholding rates, but multiple people say those aren’t the core issue here; the issue is forfeiture tied to prepayment.

Comparisons, Edge Cases, and Technical Nuances

  • Others describe more “normal” IPO experiences (Twilio, FAANGs, etc.) with automatic sell‑to‑cover and broker handling.
  • Discussion covers double‑trigger RSUs, lockup agreements (180–185 days), and 83(b) elections; many note RSU plans vary significantly and can be drafted in very company‑friendly ways.
  • Some argue RSUs are often worse for employees than they appear, especially for ex‑employees.

Suggested Responses for Affected Ex‑Employees

  • Near‑unanimous advice: hire an experienced startup/IPO/tax attorney; consider pooling with other ex‑employees.
  • Also recommended: engage a competent accountant, gather all grant and separation documents, and avoid signing new paperwork before legal review.
  • If keeping the RSUs is worthwhile and terms are enforceable, people suggest arranging short‑term financing (specialist lenders, brokers, possibly banks) using the eventual shares as collateral—while fully understanding the downside risk.