Your equity grant has different components that are important to understand:
- Equity type
- Grant date: date on which the grant is considered awarded
- Number of shares: number of shares you own in the company
- Grant Price (stock options only): the price at which you will have the right to buy the stocks
- Vesting schedule: the timeline during which you can exercise (stock options) or vest (RSU)
In addition to that, you must read the whole terms and conditions set by the company in the company equity plan.
How can I exercise or sell my stock options or RSUs?
There are several different ways you can convert your stock options or Restricted Stock Units (RSUs) into cash:
- Exercise your options: If you have non-qualified stock options, you can exercise them by paying the exercise price and taking ownership of the shares. You can then sell the shares in the open market to get cash.
- Sell your RSUs: Once your RSUs have vested, you can sell the shares in the open market to get cash.
- Sell to cover: Some companies allow employees to use a portion of the shares they receive upon exercise or vesting to cover the taxes owed on the transaction. This is known as "sell to cover."
- Cashless Exercise: Some companies offer a cashless exercise option, where an employee can exercise their options without having to pay the exercise price up front. Instead, the company will sell enough shares to cover the exercise price and any taxes owed. The employee will then receive the remaining shares.
- Net exercise: Some companies allow employees to net exercise their options, which means they can pay the exercise price with a combination of cash and shares.
Your right to these options will depend on the terms and conditions set by the company in the company equity plan.
It is important to note that exercising stock options or selling RSUs may have tax implications, so we recommend you consult with a tax advisor before making any decisions.
What will happen to my stock options and RSU if the company goes public or is acquired by another company?
If your company goes public or is acquired by another company, the treatment of your stock options and restricted stock units (RSUs) will depend on the specific terms of the transaction and the terms of your company equity plan.
In general, when a company goes public, the existing stock options and RSUs will generally be exchanged for options or RSUs in the new publicly traded company. The exercise price and vesting schedule of the new options or RSUs will be determined by the terms of the initial public offering (IPO). The value of the options and RSUs will then be based on the stock price of the new publicly traded company.
When a company is acquired by another company, the treatment of your stock options and RSUs will depend on the terms of the acquisition. In some cases, your options and RSUs will be exchanged for options or RSUs in the acquiring company. In other cases, your options and RSUs may be cashed out at a set price or converted into shares of the acquiring company's stock. The specific terms will depend on the terms of the acquisition and the terms of your stock option or RSU plan.
It's important to note that in any of these cases, the value of the options and RSUs will be subject to change based on the stock price of the new company and the value of the acquisition or IPO.
It's always recommended to consult with a tax advisor and/or a lawyer before making any decisions regarding your stock options and RSUs in the event of a company's acquisition or going public.