[LRUG] Looking to meet...

[andy olliver]

Really enjoying reading this thread from the sidelines.

Agree that options are generally best route for many reasons.
V.important warning - they often come to nothing, don't count the value before it becomes real.
- even for companies that do achieve some sort of success (of notoriety), or look at first like they have that potential.

Always ensure, that if you only walk away after your hard work with the salary paid, you'll bear no resentment. A bit of disappointment is ok.. but ensure it is no more than that.

Amusing example from 'back in the day':  boo.com - 1999 raised greatest ever VC funding for internet startup; front-page news; cinema ads; grew big team; made big noise; generous options granted; v.questionable internal financial management; unrealistic commercial expectations; VS'c pulled funding; everybody out; only guy to make value of options certificate was one employee who sold it on ebay as dot-com memorabilia..

More recent: well known person-to-person betting exchange - generous options given to many employees; strike price (for non-early allocation options) based on unrealistic company valuation / predictions; floated recently, and current share value is well below strike price, so all options effectively worthless.

It's always a gamble - rate the turf, check the wether, hope for the best  ;)


On 16 Sep 2011, at 13:17, Ben Griffiths wrote:

> So, I'm not an expert, but I've been through this on both sides. Get
> expert advice on tax and equity matters, folks.
> 
> It's pretty unusual for a straight grant of equity not to be
> immediately taxable as employment-related income - HMRC will usually
> (not always) see them to be valued at the value of the last funding
> round. If I recall correctly it's the Income Tax Act of 2003 that sees
> to this.
> 
> Equity grants only really make sense for the employee if given at par
> - that is before any funding round when the stock can be said to have
> a penny value.
> 
> This is also why founders tend to not have equity vest, but have it
> given in bulk but subject to compulsory repurchase at par if, say,
> they leave the company.
> 
> Taking equity, therefore, means a tax bill to you straight-away and a
> larger tax bill later. It's hardly ever the smartest route for an
> individual.
> 
> The best way, for you as an employee, to get a meaningful share of the
> company without the risk of a big tax bill on what may turn out to be
> worthless shares (you won't get the tax back, of course), is to accept
> a grant of options under an EMI scheme.
> 
> http://www.hmrc.gov.uk/shareschemes/emi-new-guidance.htm
> 
> You'll pay no tax now, if the company goes under, nothing either, but
> if it does well and you've remained an employee, you'll pay less
> capital gains.
> 
> For this reason, in my experience, equity is very rarely given after a
> funding round. Options under an EMI scheme are very much better for
> the employee in almost all cases.
> 
> Ben
> _______________________________________________
> Chat mailing list
> Chat at lists.lrug.org
> http://lists.lrug.org/listinfo.cgi/chat-lrug.org