If I am receiving shares of equity as incentive stock options and I want to leave the company, will I walk away empty handed?

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If I am receiving shares of equity as incentive stock options and I want to leave the company, will I walk away empty handed?

I have been working with a start-up for 18 months as vice president. My compensation is 200,000 shares of incentive stock options only. My work and contribution to the company, including bringing angel investment money, has far surpassed my equity-only compensation. I am thinking about leaving the company because of the CEO’s instability with his personal relationships affecting the business and the way he proceeds with business decisions. If I leave the company what happens to my shares? Am I being fairly compensated? How do I exercise my options that are worth nothing still?

Asked on May 28, 2012 under Employment Labor Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

The answer depends entirely on the agreement(s) subject to which you have been working and earning these shares--this is a contract matter, and contract matters depend what the parties agreed to. It is legal to have it be the case that if you resign, you lose all shares; it would be legal for it to be the case that you would keep all of them; and anything in between (e.g. a vesting schedule, so some of the shares had vested with you) would also be legal. There is therefore no single right or wrong answer; it depends  on the agreement between you and the company.

Even if you have the options, if the stock is not liquid and/or has no value yet, they are are essentially worthless. This is why working for equity only for a start-up is incredibly risky: for every success story you hear about those who got in at the ground floor become millionaires, there are hundreds of cases where they earned nothing from their equity.


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