You Have 90 Days to Buy Stock You Can't Afford in a Company That Just Fired You

The offboarding email put it under the laptop return label

Your vested options remain exercisable for ninety days from your termination date. Then a link to a portal showing a number of shares, a strike price, and nothing else useful.

So you did the arithmetic. Say the strike comes to $40,000 for everything vested, and the last 409A price implies a paper spread big enough to generate a six-figure alternative minimum tax bill on stock nobody will buy from you. You're unemployed. Eleven weeks left. Do nothing and four years of vesting evaporates on a Tuesday.

Start with the clocks, because there are two of them and people run them together.

Two clocks

The tax rule: to keep incentive stock option treatment, an ISO generally has to be exercised within three months of when your employment ends. That's in the tax code. Exercise later and, if the plan even lets you, the option is treated as a non-qualified option instead — different tax, different timing, sometimes better for you and sometimes much worse.

The plan rule: your company's equity plan and your individual grant agreement decide how long the option survives at all. Ninety days is a common default and a company choice. Some plans run longer. Some treat a layoff differently from a resignation.

The code has longer windows for particular circumstances, and permanent and total disability and death are handled separately. If either applies, that's a conversation with a tax professional rather than something to read off a blog.

So: open the plan document and the grant agreement, find the exact termination date they count from, and write the deadline on something physical. Half the people in this situation are working from a date they assumed.

One number decides most of this

Before you spend a cent, find out what sits above you in the preference stack. Preferred shareholders generally get paid before common. Add up the liquidation preferences across every round, then hold that total against what the company could plausibly sell for. If the preferences come to, say, $180 million and a realistic sale lands nearer $120 million, common receives nothing, and your options are an expensive way to own nothing at all. That single comparison tells you more than every conversation you've ever had about the company's prospects, which is why it comes before the story and not after it.

The terms attached to those preferences move the number further. A plain 1x non-participating preference means an investor takes either their money back or their share of proceeds, whichever is larger. Participating means they take their money back and then share what's left as well, which pushes the price at which common sees a dollar much higher. A round priced below the previous one is bad for common in the obvious way; a round with structure — a multiple on the preference, a ratchet, a senior tranche that jumps the queue — is worse, and terms like that get agreed quietly when a company needs money more than it needs clean paper. Ask whether the most recent round was senior to the earlier ones.

Two smaller things once you have that. Where your strike sits relative to the current 409A: if fair market value has fallen below your strike, you're being asked to buy shares for more than the company's own appraiser thinks they're worth, which happens after a bad year more often than people expect and is a strange thing to do with rent money. And the fully diluted share count, because your slice means nothing without a denominator, and the denominator moves every time a pool is refreshed or a round closes.

They may not tell you any of it

You're an option holder rather than a stockholder, and the distinction bites here. Companies incorporated in Delaware — most of them — give stockholders of record a statutory right to inspect certain books and records for a stated proper purpose. That right generally arrives after you exercise, which is the wrong order for this decision.

So you assemble what you can: the plan document, the grant agreement, anything you signed at hire, public reporting on the rounds. Then you ask, by email, in one message, naming the specific figures you want.

Plenty of companies will decline. Some answer more than you'd guess, particularly right after a layoff, when they know the ask is coming. Either way you've learned something. A company confident about where it's heading tends to be less cagey about a preference stack than one that isn't.

Where the tax bill comes from, and why it's the cruelest part

Exercising an ISO and holding the shares doesn't trigger ordinary income tax. What it does is create an adjustment for alternative minimum tax purposes equal to the spread between fair market value at exercise and your strike price. Form 6251 is where it shows up.

Which means a gain that exists only on paper, on shares nobody will buy from you, can produce a cash tax bill next April. That's what the rule does. There's an exemption amount that phases out as income rises, so the size of the hit depends on the rest of your year — which, having just been laid off, may look nothing like last year's.

Two things worth knowing. You can exercise part of a grant, and working out how much you can exercise before AMT starts to bite is standard planning that a tax professional does with your real numbers. And AMT paid can generate a credit usable against regular tax in later years, which softens the arithmetic without making it painless, since a credit you might use across several future years is not cash you have now.

Get a CPA who has done startup equity before rather than a general preparer. The difference here is measured in the same units as your strike price.

What you can actually do

Ask for an extension. Do this first, because it costs one email. Some companies extend the post-termination window, occasionally to several years. It takes board action, and extending past three months converts ISOs to non-qualified options with everything that implies. Send it to whoever handles equity administration rather than to your old manager. The worst outcome is no.

You can exercise part. The lowest-strike tranche, or the amount that keeps you under your AMT threshold, is a position, and it's the one most people never realize is available.

Exercise financing firms advance the strike and the taxes on a non-recourse basis: if the company goes to zero, you owe nothing. In exchange they take a slice of the upside plus fees, and the slice looks enormous until you remember they're pricing a portfolio in which most positions return zero. Read the terms for how proceeds are defined and what happens in an acquisition with an earnout. And note that they only fund companies they want exposure to, so being turned down is information you got for free.

A secondary sale is sometimes possible, usually restricted, and the company typically holds a right of first refusal. Check the transfer restrictions in your agreement before spending time on it.

The four years are already paid for

The pull you're feeling is the sense that walking away means those four years meant nothing.

They didn't. You were paid a salary for them. The options were a lottery ticket you didn't buy, and the only question in front of you is whether you'd buy that ticket today, at that strike, with money you currently need for rent, knowing what you now know about the preference stack. If the answer is no, letting them lapse is declining to make a second and much riskier investment in a company that has already made its view of you clear.

Sometimes the answer is yes, or yes for part of it. That's an outcome too.

What you can't get is certainty. A company doing well can produce nothing for common in a structured exit, and companies written off for dead have paid out. Anyone who says they know is guessing.

TrueTalk has an advisor called Funding Felix, an AI persona built around venture capital, and it's somewhere to walk through what a preference stack does to your particular numbers before you pay for advice you're not ready to use yet. For the exercise and the tax, get a professional in the room.

All of it turns on one figure: the total of the liquidation preferences sitting above common. Nobody volunteers that number. Ask for it by name.