What’s the difference between public & private companie’s ISO offerings?

October 10, 2014

Subject:   Question re: ISO private company gets acquired? remains private?
Date:   01 Feb 2012
From:   Bailie

Hi there,

I left a private company during December, 2011. I have incentive stock options, which I must exercise by March 1 or they will lapse.

The company will either remain private, be acquired by a public company, or issue an IPO.

If the company remains private, what happens?

If the company is acquired by a public company, what happens?

I think I understand what will happen with an IPO.

Thank you in advance for your time.


Date:   10 Feb 2012

Hello Bailie,

If the company remains private, you will receive restricted stock which you might not be able to sell. You could have income subject to the alternative minimum tax. You need to get the facts about the fair market value of the stock (usually determined based on a valuation study) compared to the option price. Avoid putting yourself in financial distress if there is a big tax liability. You might have to “walk away” from some of the options.

If the company is acquired, the consequences will depend on how the acquisition is structured. Hopefully you will be able to sell your shares or shares of the acquiring company’s stock. A problem could be timing. You could owe an alternative minimum tax before the acquisition takes place.

Best wishes,

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options – Executive Tax and Financial Planning Strategies.

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