Received stock options from your company and don’t understand what that means? Here’s how to make sense of your offer letter and option grant.
So you’ve joined a startup.
And you’ve done everything everyone says you need to do. Set up direct deposit, started contributions to your 401(k)—even scoped out the best snacks. You’ve taken care of everything that needs to be done. Right?
It’s easy to forget to accept your stock grant, as sometimes you don’t get it until weeks or months after you join. But accepting your stock grant is one of the most important tasks to take care of when starting at a company. Yet many people make the mistake of forgetting about it, or worse, ignoring it.
Here’s why accepting your stock grant is a no-brainer.
It can provide significant financial benefits
When your company offers equity, they give you a personal reason to stay invested in the business, as you could benefit financially if the company succeeds.
The key to stock options and grants is they provide optionality. Though a stock option is not the same as being given shares outright, it gives you the option to purchase shares of common stock at an agreed-upon price. If the stock value increases, you could make significant financial gains—but only if you’ve exercised (purchased) your options. And you can only do that if you’ve accepted your grant.
The earlier you understand your options and the financial implications of exercising, the sooner you can make smart financial decisions. Timing is everything, and giving yourself more time when it comes to your stock options can be the fine line between a financial win or losing out on benefits altogether.
Learn more about how stock options and equity work by reading our Equity 101 series.
It’s free and you’re not obligated to purchase your options
Just because you accepted your stock grant doesn’t mean you actually have to purchase your shares. You’re not making any kind of financial agreement—rather, you’re just agreeing to have the ability to purchase shares of stock in the future. The only thing you need to do to accept your stock grant is sign on the dotted line (or, if your company uses Carta, click “accept.”)
Generally, there aren’t any ramifications to accepting your offer. The exception is if you get an RSU grant. When RSUs vest, they can have a taxable gain, which means that you may be liable for paying tax on them. Though the tax isn’t ideal, companies will often allow you to sell shares to cover the taxes and furthermore, given that RSUs don’t usually vest until an IPO or acquisition—you’ll usually have the liquidity you need to pay for said taxes.
Accept your grant
It may sound complicated, but accepting your stock grant should be a no-brainer for anyone who’s starting at a new company. It’s low-risk and can provide measurable benefits down the road.
To get started on the ins and outs of stock options, check out part 1 of our series Equity 101: Startup Employee Stock Options.
DISCLOSURE: This communication is on behalf of eShares Inc., d/b/a Carta, Inc. (“Carta”). This communication is not to be construed as legal, financial, accounting or tax advice and is for informational purposes only. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein.
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