What happens to my unvested stock options when I'm fired?

Unvested stock options typically expire when you're terminated. However, you can negotiate for accelerated vesting (some or all unvested options vest immediately) as part of your severance agreement. Vested options are yours but usually have a 90-day exercise window that can also be negotiated.

Can I negotiate a longer exercise window for my stock options?

Yes. The standard 90-day post-termination exercise window is negotiable. Many companies will agree to extensions of 6 to 12 months or longer. A longer window gives you more time to arrange financing or wait for a liquidity event before exercising.

How does accelerated vesting affect my taxes?

Accelerated vesting of RSUs creates a taxable event in the year of vesting. The value of the vested shares is treated as ordinary income. For stock options, the tax treatment depends on whether they're ISOs or NSOs and how long you hold the shares. Consult a tax advisor for your specific situation.

Startup Equity in My Severance Agreement: What Happens to My Stock Options?

If you worked at a startup or tech company in Los Angeles, a chunk of your compensation probably came in the form of equity: stock options, restricted stock units (RSUs), or some other form of ownership stake. Now that you're being terminated, what happens to it? The answer depends on your vesting schedule, the type of equity, and what you negotiate in your severance agreement.

Vested vs. Unvested Equity

Vested equity is yours. If your stock options or RSUs have vested, they belong to you. Your employer cannot take them back through a severance agreement (though they can set deadlines for exercising options).

Unvested equity is at risk. When you're terminated, you typically lose any equity that hasn't vested yet. If you're on a four-year vesting schedule with a one-year cliff and you're fired at month 18, you have six months of vested equity. The remaining 30 months? Gone, unless you negotiate.

This is where the severance agreement becomes critical. Your unvested equity might be worth significantly more than the cash severance being offered. Don't let it disappear without a fight.

Stock Option Basics

Stock options give you the right to buy company stock at a fixed price (the strike price). If the company's value has increased since your options were granted, the difference between the strike price and the current value is your gain.

The key issue at termination: you typically have a limited window to exercise vested options after you leave. The standard is 90 days. After that window closes, your vested but unexercised options expire. Permanently.

For many startup employees in LA, this creates a painful choice. Exercising options costs money (you have to buy the shares at the strike price), and if the company is private, you can't sell those shares to fund the purchase. You might need to come up with $20,000 or $50,000 or more out of pocket, right when you just lost your income.

What You Can Negotiate

Accelerated vesting. Ask for some or all of your unvested equity to vest immediately as part of the severance. Full acceleration is a big ask, but partial acceleration (an extra 6 or 12 months of vesting) is a reasonable and commonly granted request.

Extended exercise window. Push to extend the 90-day exercise window to 6 months, 12 months, or longer. This gives you more time to arrange financing or wait for a liquidity event. Some companies have moved to longer exercise windows as standard practice (Coinbase and Pinterest famously extended to 7 and 10 years), so there's precedent.

Cashless exercise or buyback. If the company's stock has appreciated, ask whether they'll facilitate a cashless exercise (sell enough shares to cover the exercise cost) or buy back your vested shares at fair market value.

Information rights. If you're holding equity in a private company, negotiate for ongoing access to financial updates and 409A valuations so you can make informed exercise decisions.

RSU Considerations

RSUs are simpler than options in some ways: they're given to you at no cost once they vest. But unvested RSUs disappear when you're terminated, just like unvested options. If you have a significant RSU grant with years of vesting remaining, the lost value could dwarf the cash severance.

Negotiate for accelerated vesting of RSUs just as you would for options. With RSUs, there's no exercise cost to worry about, but there are tax implications when they vest (RSUs are taxed as ordinary income at vesting).

Tax Implications

Equity in severance creates tax complexity. A few key points:

ISO vs. NSO. Incentive Stock Options (ISOs) have favorable tax treatment if you hold the shares for at least one year after exercise and two years after grant. But the 90-day post-termination exercise window can convert ISOs to NSOs (Non-Qualified Stock Options), losing the tax advantage. Negotiating a longer window may help preserve ISO treatment.

Accelerated vesting tax event. If your severance includes accelerated vesting of RSUs, the vested shares are taxable income in the year they vest. Make sure you account for this in your tax planning.

83(b) elections. If you received early-exercised restricted stock, your tax situation depends on whether you filed an 83(b) election. This is a specialized area where you'll want a tax advisor involved.

Don't Let Equity Disappear Quietly

In LA's tech and startup ecosystem, equity can represent a massive portion of total compensation. Employees who focus only on the cash severance and ignore the equity discussion leave potentially life-changing money on the table.

Before you sign your severance agreement, have an employment attorney review the equity provisions. Contact our team for a free consultation. We work with startup employees throughout Los Angeles and understand the equity issues that come with tech industry severance.