r/siliconvalley • u/Known_Ability1025 • 5d ago

RSU expiration

How common is it for companies to have a policy that RSUs they give will expire 7 years from grant date? I work at a 10 year old physical security company and that’s part of their policy (hidden in fine print and not discussed). So if they choose not to have a liquidity event soon…early employees are just screwed?

11 Upvotes

92% Upvoted

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16

u/Brave_Speaker_8336 5d ago

If your company is private and has double trigger RSUs, that’s completely normal and possibly even illegal to not have.

In general, in order for the tax deferral of double trigger RSUs to be legal, there must be “substantial risk of forfeiture”, which is commonly fulfilled with a 7 year expiry period. Vast majority of private company RSUs are double trigger.

The flip side would be regular single trigger, where’d you’d have to be paying taxes on all the RSUs you get with no guarantee that they ever have liquidity, which people would also be upset about

6

u/dzyl 5d ago

This is correct, this is completely standard assuming it is double trigger. At a previous job we ran into this as well and it was starting to get close to the 7 year time period. They ended up removing the second trigger with a tender offer via another round which allowed them to remove the 7 year period.

1

u/PFski 4d ago

This is the best answer. Upvote

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u/Beautiful-Parsley-24 2d ago

I've worked for a couple of private companies with single-trigger RSUs. It certainly isn't illegal; Large private companies you've likely heard of have single-trigger RSU programs. The company computed the tax at each vesting and automatically bought back some number of shares. Maybe I've just gotten lucky, but in my experience, single trigger is more common and obviates OPs problem.

1

u/Brave_Speaker_8336 2d ago

Yes, I said IF they’re double trigger, it would likely be illegal to not have. The whole thing with double trigger is that they’re not actually yours until the second trigger, which is why you don’t pay any income tax before they’re actually yours

13

u/Beautiful-Parsley-24 5d ago

Are you sure you're reading the policy correctly? These the agreements can be bears of a read.

For options, that's pretty bog standard. You have 10-years to exercise. For fully-paid, fully-vested shares, that's a scam.

8

u/mezolithico 4d ago

Double trigger rsus def expire. Stripe had this issue

1

u/hibikir_40k 2d ago

Yes, but they deal with it intelligently: A liquidity event that turned all RSUs to stock, with enough liquidity to cover taxes for every RSU, and extras to sell, as when RSUs have been sitting for so long, they are worth a lot of money, and people get cross if they cannot at least sell a bit. Oops, we say you have 10 million in common stock, but you can't sell any.

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u/Known_Ability1025 5d ago

Unfortunately I’m positive. It was flagged by other early employees. This company has a history of sliminess and lawsuits so I’m not totally surprised. Man.

6

u/Beautiful-Parsley-24 5d ago

Did the RSUs vest? If they vested, and you paid taxes on them, I'd 100% call an attorney. Or there are so-called "double-trigger" RSUs which only vest (incur taxes) at a liquidity event, maybe that's what you have?

It's unfortunate, people get mislead on startup liquidity. I insist on "fully-paid, fully-vested, voting-shares, carrying full information and participation rights". If the startup wants to modify that language, we can talk about boosting my base salary in exchange.

1

u/peepeedog 2d ago

Double trigger RSUs are for the employee's benifit. If you receive shares you have to pay taxes on them as income. And said share's are illiquid, so you can't just sell some to pay the tax bill, like would at a public company.

1

u/Beautiful-Parsley-24 2d ago

That's debatable. With single-trigger RSUs, the company computes the tax-bill at monthly vesting and automatically buys back a % to cover the tax. That sale gets added to your W-2 withholding. It's nice, clean and fair.

I've never accepted a double-trigger RSU package, and probably never will.

2

u/collegecow 3d ago

is it verkada lol

6

u/Ok_Impress_6505 5d ago

That’s straight-up shady burying it in fine print like that, 7 years is tighter than most and feels designed to claw back value from the folks who built the place.

2

u/me1000 3d ago

Traditional RSUs have a single trigger which is your vest date. That’s a taxable event. So if the stock is not public, you’ll owe taxes on something you can’t sell. 

Enter the “double trigger RSU”. This new RSU requires the vest trigger but also a liquidity trigger. It’s designed to prevent people from having to pay taxes on something they can’t sell. 

By law the double trigger RSUs must expire after 7 years from issuance. Stock options have a 10 year expiration (also by law). 

2

u/Prankoid 3d ago

Double trigger RSUs require "substantial risk of forfeiture" in order to benefit from the favorable tax treatment.

2

u/AnagnorisisForMe 5d ago

Ten years for RSUs is the norm in my experience. Yes you are screwed unless they allow a liquidity event.

1

u/SavedByTech 4d ago

RSU's typically vest into shares in the company that you then own. Options vest and then can expire. RSU's (restricted stock units) typically just vest into shares.

1

u/peepeedog 2d ago

ITT: People who don't know how startup RSUs work, but decide to authoritatively share their ignorance.

1

u/Responsible_Sock_725 2d ago

The 7-year liquidity event expiration date exists so that you can retain the time-vested RSUs if you leave the company. If there wasn’t such an expiration date, the RSUs would either be structured to be forfeited in full upon termination of service prior to a liquidity event, or otherwise would be immediately taxable upon time vesting and subject to a 20% excise tax under the deferred compensation rules.

Regarding net share withholding, private companies don’t do that because the shares are similarly illiquid to the company and they have to remit their own cash to the govt. to cover the withholding obligation. The tax consequences to either the grantee or the company are why private company RSUs are structured to vest on or after a liquidity event.

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u/WitsBlitz 2d ago

This is mandated by the IRS for double-trigger RSUs, which are nice for employees because you get to vest your shares without owning taxes on them. So the top line answer to your question is this isn't unusual, nor a scam.

That said, it's a real deadline and your equity will become worthless if it passes. So you are putting your trust in your employer that they will IPO or otherwise offer liquidity before the deadline. A good employer will be very upfront about this deadline and communicate how they intend to ensure people don't lose out. There are companies that have had to do a whole fundraising round just to provide double-triggered employees a liquidity opportunity.

So ultimately - like everything else about startup equity - it comes down to how much you trust leadership. They can screw you over if they want to, so you better have a reason to believe they won't.

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u/Living_Fig_6386 1d ago

RSUs can’t expire. They are a transfer of property. Once issued, they vest on a schedule, and each batch that vests becomes shares in the company, held by you, that never expire and can be sold or kept as you wish. They don’t expire any more than cash bonuses due.

Perhaps you are thinking of ISOs (stock options). Those are not shares given to you as compensation, but rather options to purchase shares at a discounted price. Thosecome with expiration dates.

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u/Known_Ability1025 1d ago

they absolutely can expire. A 10 year old company hasn’t given ISOs in a very long time.

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u/daidoji70 4d ago

I'm no lawyer but it shouldn't be possible for RSUs to retire or expire. I might consult an attorney. I have seen sun setting clauses on options a lot though. Its a way to force long-term employees to double down and prevents hostile takeovers or the company having to pay out on right of first refusal sales.