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

UPDATED: May 28, 2012

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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


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 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.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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