Holding 5,000 ESOP Shares but Tax Issues Are Blocking My Cash — Help Needed!
I am an ex-employee holding 5,000 company ESOP shares. Due to the high tax implications, I am currently unable to exercise these ESOPs. At the same time, I urgently need money for personal and family emergencies but feel stuck because of this situation.
Could someone with experience in stock or finance please guide me on what options I have or how to handle this?
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What is the deadline upto which you can exercise the ESOPs?
Also there are apps in market fund you to exercise those ESOPs(obviously takes a cut)
See if you can check the deadline and manage your finance accordingly.
The deadline to exercise ESOPs is either 10 years from the date of vesting of the ESOPs or 12 years from the date of the company’s shares being listed on the stock exchange, whichever is later.
also there is ESOP Financing but it comes with nunaces what i understood from T&C - -ESOP financing provides a loan to cover exercise price and taxes. -Shares allotted after exercise act as collateral for the loan. -Loans come with interest and fees, increasing overall cost. -Selling shares to repay the loan can only happen during specific trading windows with approvals.
Exercising options is different from selling shares for cash. The former is merely converting your options into shares which you could choose to sell when you get the opportunity to. The only two reasons why people want to exercise options into shares is either
a) the options expire if not exercised within X days (looks like thats not a problem in your case as you have 10 years to do this), OR
b) they want to exercise early so that they can save initial perq tax outlay in the event the valuation of the company increases massively in private funding rounds in the near future thereby making it harder to exercise due to new increased tax outlay at that time. (Again, this is usually a problem when the exercise period is short and employees fear that the options would expire due to their inability to arrange funds. Doesnt look like a problem in your case)
So, your problem does not seem to be inability to exercise options, rather it is liquidating your shares since you need cash for expenses. Unfortunately there are limited avenues to solve for this. The only real possibilities are
a) either find someone who is willing to buy your shares over the counter (aka secondaries) and get your company to approve the transfer
b) request your company to buyback your shares
c) use your shares as collateral to secure a loan for expenses (this is risky and expensive and would NOT recommend)
If you have a longer Exercise Period, it seems like it may be 10 years from the date of vesting (as per your comment above) - you don’t really have to act on this now.
You seem to have ample amount of time to figure out whether you want to even exercise in the first place.
For a better recommendation, tell us more about the company? Which stage of funding round (if private) or whether it’s public?
Have u not exercised them before resignation
Are these tradable? If not, do you have a buyer in place?
Sometimes, companies or brokerage houses give an option to exercise ESOP and settle tax implications with sale of shares from it. Worth checking…
Taxes need to be paid to convert your options into shares. There are a couple of ways depending upon your particular situation -
- If the company is listed. You could take a short term loan for the taxes, sell the shares later to cover the loan. Upto you if you want to sell all shares or only enough to cover the loan.
- If the company is unlisted- i. You need to find a buyer for your shares. Either the company can buy back or you find someone else through a broker. Take loan as explained in (1) for taxes. ii. If the deadline to exercise is far away, just stay put and don't do anything. One caveat here is that if you think the valuation is too high and is likely to tank. Then you should do 2(i). I have friends who sold Paytm shares in private market at 1800-1900 range. Turned out to be great for them.
You can do it bruh, I was able to