Equity management
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Designing a Phantom Option Plan for an NBFC
Leaving a job is never just about your salary or title. If you’ve been granted equity or stock options, there’s another layer to think about, and it can significantly influence your financial prospects.
So, what actually happens to your equity when you leave a company?
In simple terms, it depends on three things: how much of your equity is vested, what type of equity you hold, and how quickly you act after leaving. Some of your equity may remain yours, some may be forfeited, and some may require you to make decisions within a tight window.
Let’s break it down so you know exactly where you stand.
Before anything else, you need to know how much of your equity is actually yours to keep.
Vesting is the process by which you earn the right to your equity over time, typically tied to your tenure at the company. Most companies use a vesting schedule, typically over four years, often with a one-year cliff.
One-year cliff: You earn nothing if you leave before completing one year
After the cliff: A portion vests, then continues monthly or quarterly or yearly according to the specific vesting schedule outlined in your grant agreement.
To determine how much of your equity is vested, you should check and review your original grant document. Your total vested equity represents the only portion you are entitled to keep upon departure. Any equity that has not reached its vesting date as of your final day of employment is generally forfeited back to the company.
When you resign, your vested equity remains yours, but you are typically subject to a strict deadline known as the post-termination exercise period or PTEP. During this window, which often lasts 90 days, you must decide whether to exercise your vested stock options. If you choose to exercise, you purchase the shares at the strike price defined in your agreement, officially becoming a shareholder.
Failure to exercise your vested options before the PTEP expires usually results in the forfeiture of those options. While some modern companies have extended these windows to several years, you must verify your specific plan rules to avoid losing the opportunity to purchase your vested equity.
Yes, you will almost certainly lose any unvested equity when you leave. Unvested equity is a conditional grant, and it is strictly tied to your continued employment. Once your employment relationship ends, the condition for further vesting is no longer met, and the company reclaims those unvested shares.
Because of this, some employees choose to time their departure to maximize their vesting. If you are close to a vesting milestone, such as a monthly vest date, extending your departure by a few days can sometimes secure additional equity.
Equity compensation is not one-size-fits-all, and the type of grant you hold significantly affects your tax and exercise strategy. The type of equity you hold is important when you leave, because each type is handled differently. Each comes with different rules for vesting, taxation, and what happens after you leave. Your grant agreement or equity management platform will clearly label which type you have been issued.
Here is a breakdown of the most common forms:
RSUs are a promise of shares (or cash equivalent) upon meeting vesting conditions. Once an RSU vests, you own the shares outright. If you leave before your RSUs vest, you lose them with no exercise decision required, there's nothing to buy. Vested RSUs that have already been delivered to you as shares remain yours.
For private company employees, RSUs often have double-trigger vesting, meaning they require two conditions to be met: a time-based condition and a liquidity event (like an IPO or acquisition). If neither trigger has been met when you leave, you likely walk away with nothing.
RSAs are actual shares granted upfront, often with vesting conditions attached. If you leave before they vest, the company typically repurchases any unvested RSAs at the original purchase price or some other price outlined in your grant.
Also read: Understanding stock grants distribution: A detailed guide
Knowing your current exercise status is vital for tax planning and cash management. You should track how many options you have already converted into shares versus how many remain as exercisable options. Exercised shares are yours to keep, regardless of your employment status, while unexercised vested options remain at risk until you complete the exercise process.
If you hold stock options, take stock of how many you’ve already exercised before you leave. Any options you have exercised and converted into actual shares are already yours; your company generally cannot take them back, except in cases where a clawback clause applies. Unexercised options, even if they are vested, require action on your part within your post‑termination exercise period.
This is one of the most critical factors. This is where many people lose equity they had rightfully earned. The post-termination exercise period, often called the PTEP, is the time you have after leaving to exercise your vested but unexercised options. Once this window closes, those options expire permanently.
While 90 days is common, you must check your specific agreement, as some plans require exercise immediately upon leaving or provide extended periods up to several years.
Always confirm:
When you leave a company, exercising your equity means purchasing your vested stock options at the predetermined strike price. The process is typically managed through your company’s equity management platform, where you can review your vested shares, exercise window, strike price, and the total amount payable.
For example, assume you have 1,000 vested stock options at a $2 strike price per share. If you decide to exercise all your options, you would need to pay $2,000, plus any applicable taxes and fees, to convert those options into company shares.
Platforms like Qapita simplify this process by giving employees a centralized view of their equity holdings, vesting schedules, exercise timelines, and ownership records. Instead of navigating spreadsheets or paperwork, employees can track and manage their equity in one place and make informed decisions before their exercise window expires.
Once the payment is completed and the exercise is approved, the shares are transferred to you based on the company’s equity plan and policies.
Equity does not automatically translate into cash. In most cases, converting equity into money requires a liquidity event, such as an acquisition, a secondary market tender offer, or an initial public offering (IPO).
If you work at a private company, you generally cannot sell your shares whenever you want. Most private companies restrict share sales unless they formally approve a secondary sale or go through an exit event.
For example, you may exercise your vested stock options and officially own shares in the company, but you still might not be able to sell those shares immediately. This means your money could remain tied up for years until the company creates a liquidity opportunity.
Typically, employees can realize value from their equity when:
Until then, your shares may remain illiquid. Before spending money to exercise your options, it’s important to evaluate the company’s growth stage, potential exit timeline, and your own financial risk tolerance.
Exercising stock options can require a significant upfront payment, especially if you have a large number of vested shares or if the company’s valuation has increased substantially since your grant date. Beyond the strike price, you may also need to account for taxes and administrative fees, which can make the total cost difficult to manage.
If you cannot afford to exercise all your vested options, one approach is to exercise only a portion of them to reduce your immediate financial burden while still retaining some ownership potential. Some employees also explore financing solutions or secondary market firms that help cover exercise costs and taxes in exchange for a share of the future upside. While these solutions can provide flexibility, it is important to carefully review the terms, repayment structures, and potential impact on your future gains before moving forward.
Leaving a company can significantly impact your equity, but understanding your vesting status, exercise window, and the type of equity you hold can help you make informed decisions. Before your departure, take the time to review your grant agreements, understand your timelines, and evaluate the financial implications of exercising your options. A clear understanding of your equity today can help you understand where your equity stands.
Managing equity should not feel complicated. Qapita helps companies and employees track vesting schedules, manage stock options, monitor exercise windows, and maintain accurate ownership records through a centralized equity management platform.
Granting equity or preparing to exercise vested shares? Qapita makes the process more transparent, organized, and accessible. Book a demo to learn more.
Pull up your equity grant agreement, this is the document you signed when the equity was granted. It should specify the type of equity, your grant size, your vesting schedule, your strike price (for options), and the post-termination rules. If you can't find it, ask your company's HR or legal team for a copy, or log into your equity platform.
It depends on the reason. If you are laid off or terminated without cause, most companies treat it similarly to a resignation, vested options are yours to exercise within the PTEP, and unvested equity is forfeited. If you are terminated for cause (misconduct, policy violations), many equity plans allow the company to immediately cancel all options, including vested ones.
Many equity plans include specific provisions for retirement, death, or disability, often allowing for accelerated vesting or extended exercise periods. Check your equity award agreement for retirement-specific terms.
If your company is acquired, the outcome for your equity depends on the deal structure and your company’s equity plan. Your vested equity may be converted into shares of the acquiring company, cashed out, or become eligible for accelerated vesting. Unvested equity may either continue vesting under the new company or accelerate partially or fully, depending on the terms of the acquisition.
