Welcome to the Ars OpenForum. Posting Guidelines Contact Moderators. How do stock options work when your company gets bought? Wed Oct 25, 3: Hypothetically speaking, let's say I work for a startup. I have options 10 cents per option. There are 1 million shares and options outstanding. Company gets bought for 20 million. Wed Oct 25, 4: In this hypothetical situation we need a lot more information to determine if your options are worth anything or nothing at all.
Just because there are 1 million shares outstanding doesn't mean much. My company recently bought a startup and the employees got nothing. Most companies have assets and liabilities. Usually it's not just a clean transfer to a new name, but some of the liabilities are settled or renegotiated, assets are written off, etc. Bondholders and holders of actual stock are compensated before option-holders. Someone, let's call him the Man, will come up with a figure for what your options are worth and will offer it to you, in exchange for you signing a piece of paper agreeing it is fair compensation.
It depends on the option contract; some options allow you to exercise at anytime, or are forced to exercise if the company is sold unless the sell price is below the option price , others say if the company is sold, they are not worth a damn thing.
Wed Oct 25, 7: You'd be amazed how often your hypothetical "1 million shares and options outstanding" suddenly becomes a whole lot larger number right before the acquisition happens. Heh, I kind of figured there were several issues that could play a part: I am basically resolved to just assume that to some degree how much my options are worth is up to the generosity of the board of directors.
Luckily for me, they have a track record of being relatively generous. Let's hope they keep it that way! Thu Oct 26, 8: I thkn as partof the buyout plan, they should have an equation that says "X shares of stock in company X are now worth Y shares of stock at company Y". If you have options you haven't exercised, you'll proababbly have the exercised for you and the be issed stock on the new company at teha bove formula. If you have a chance though, stock prices usually spike when a takeover is annonced, so I would cash the otions then.
Thu Oct 26, Originally posted by Emkorial: Do not conflate stock options with stock. An option to buy stock at a certain price. Depending on your agreement or contract, the options may expire or they may not be transferrable to a new company or even a new board. Many companies, in order to be attractive for purchase, write in to the option contracts that the purchasing company does not have to honor options to buy- basically making the option liability non-transferable.
I'm familiar with common stock and preferred stock. Preferred stock is the best type, it has rights and you get paid first before common stock. Typically founders have preferred stock and everyone else gets common stock for private companies non-public stock.
It seems the answer is, "it depends. Very nice deal for the employees of the purchased company. Pontiphex Ars Legatus Legionis Registered: Mar 12, Posts: Sulvar Ars Tribunus Militum Registered: Apr 12, Posts: Apr 6, Posts: Jun 21, Posts: Ponziani Ars Praetorian Registered: Aug 21, Posts: Emkorial Ars Legatus Legionis Registered: May 11, Posts: This is true if both companies are public.
When the company I worked for was acquired in an all-cash transaction , all vested options were converted to cash at a certain price per share, and unvested options were converted to unvested options in the acquiring company at a set ratio based on the acquisition price and the acquiring company's stock price on the day the deal was complete.
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