Part 9 of Before You Sign, a Before You File series for employees in all 50 states on the paperwork that shapes how a job begins, how you’re paid and how it ends.
Equity is promised in years and lost in days. The offer letter talks about a grant worth a meaningful share of your total pay, vesting over four years, and you start counting on it. Then the job ends, and you discover that the unvested shares disappeared on your last day, that your vested options expire in 90 days unless you come up with the cash to buy them, and that the definition of “cause” in a plan you never read may let the company take back some of what you thought was yours.
None of this is hidden. It’s all in the equity plan and your grant agreement, documents most people click through during onboarding and never open again. This final article (for now) in the series explains what kind of equity you hold, what happens to it when you leave or are let go, which dates and clauses decide how much you keep, and how to negotiate equity both when you’re hired and when you’re on the way out. It’s legal information, not tax advice, and the tax side of equity is complicated enough that a conversation with a tax professional is worth having before you make any decision about exercising or selling.
Know what you hold
The first step is identifying what kind of equity you actually have, because each type behaves differently when you leave. Your grant agreement or the company’s equity portal will name it. The table shows what usually happens at exit, though your own plan controls.
| Type | What it is | Unvested at exit | Vested at exit |
|---|---|---|---|
| Restricted stock units (RSUs) | A promise to deliver shares, or their cash value, as they vest; common at public companies | Usually forfeited on your last day | Already delivered to you as shares and taxed as income when they vested; yours to keep |
| Incentive stock options (ISOs) | The right to buy shares at a fixed price, with possible tax advantages; common at startups | Usually forfeited | Must be bought within the post-termination window, often 90 days, or they expire |
| Non-qualified stock options (NSOs) | The right to buy shares at a fixed price, without the ISO tax treatment | Usually forfeited | Must be bought within the post-termination window or they expire |
| Restricted stock | Actual shares you received up front, subject to vesting | The company can usually buy back unvested shares, often at what you paid | Yours, though private companies may hold buyback rights |
| Employee stock purchase plan (ESPP) | Shares bought through payroll at a discount | Contributions not yet used are usually refunded | Shares already purchased are yours |
If you work for a private company, add one more question: can you actually sell what you own? Shares in a private company often can’t be sold until the company goes public or is acquired, and the company may have the right to buy them back or approve any transfer. That affects whether exercising options is worth the cost.
Vesting and the date that decides everything
Most grants vest over time, and the most common pattern is four years with a one-year cliff: nothing vests for the first 12 months, then a quarter vests at once, and the rest vests monthly or quarterly after that. The consequence is blunt. Someone let go at month 11 typically walks away with nothing, and someone let go a week before a quarterly vest loses that quarter entirely.
That makes your termination date one of the most valuable numbers in any exit. Look up your next vesting date before you resign, and before you agree to a separation date in a severance negotiation. A notice period, garden leave or a separation date pushed a few weeks later can carry you past a vest, and companies agree to that more often than people expect, because it costs them shares rather than cash. If you’re thinking about leaving voluntarily, the same logic applies to your own timing.
Check how your plan treats leaves of absence too. Some plans pause vesting during an extended unpaid leave, which matters if you’re planning the kind of leave described in Part 3.
The exercise window
If you hold stock options, leaving the company starts a clock. Most plans give you a fixed period after your last day, very often 90 days, to exercise your vested options by paying the strike price. Options you don’t exercise in that window usually expire and go back to the company. That 90 days is a company choice, not a legal requirement, and some companies offer much longer windows, so check your own grant agreement rather than assuming.
The common 90-day window traces back to a federal tax rule. Incentive stock options keep their favorable tax treatment only if you exercise them within three months after your employment ends, or within one year if you leave because of a permanent disability. Exercise an ISO later than that, even under a plan that allows it, and it is taxed as a non-qualified option instead.
The hard part is cost. Exercising means writing a check for the strike price on every share, and depending on the type of option and the company’s value, it can also create a tax bill, even if you can’t sell the shares for years. People leaving private companies sometimes have to choose between paying thousands of dollars for illiquid stock or walking away from years of vesting. Work out the numbers early, ideally with a tax professional, and don’t let the deadline arrive before you’ve decided.
When vested isn’t necessarily yours
Vesting is supposed to mean the equity is earned, but several clauses can reach past it. Read the equity plan, not just your grant summary, for each of these.
- Termination for cause. Many plans cancel all options, including vested ones, if you’re fired for cause, or shorten the exercise window to zero. How the plan defines cause matters enormously, which is why Part 6 suggested negotiating a narrow definition at hiring.
- Repurchase rights. Private companies often reserve the right to buy back shares you exercised, sometimes at fair market value and sometimes at your original cost, particularly if you leave early or join a competitor.
- Forfeiture for competition. Some plans cancel unexercised or even vested equity if you go to work for a competitor or breach a non-solicit. A few states now treat those provisions as non-competes in disguise, as Part 4 explained, so state law may limit them.
- Clawbacks. Executives at public companies are often subject to policies that recover incentive pay after a financial restatement or misconduct, and some private plans include broader clawback language.
If you’re being let go, ask in writing whether the company considers the termination to be for cause under the equity plan. The answer affects more than your equity, and you want it on the record before the exercise window starts running.
Negotiating equity, going in and going out
At hiring, the most valuable equity terms are about what happens if things go wrong. Ask for the grant in a specific number of shares rather than a dollar value, the vesting schedule, and the current strike price or share price in writing. If you’re joining a company that could be acquired, ask about acceleration: “double-trigger” acceleration vests some or all of your unvested equity if the company is sold and you’re let go or your role is cut within a set period afterward. Ask about the exercise window as well, since a company that already offers a longer window for departing employees may extend it to you if you raise it.
At exit, equity is often the easiest part of a severance package to improve, because it costs the company shares rather than cash. Reasonable requests include accelerating the next vesting tranche or a set number of months of vesting, a separation date that carries you past a vest, a longer exercise window, and written confirmation that the termination is not for cause. If you hold ISOs, keep in mind that a window longer than three months means any options you exercise after that point lose ISO tax treatment, which may still be worth it for the extra time. Put every equity term in the separation agreement itself, with share counts and dates, rather than relying on a promise that HR will take care of it.
Talk it through with us
Form America’s tagline is Sometimes all you need is help with the paperwork, and equity may be the most complicated paperwork in your career: the plan, the grant agreements, the vesting schedule, the exercise window and whatever the separation agreement says about all of them. If you’re leaving with unvested equity, facing an exercise deadline, or negotiating equity terms in an offer or a severance package, you can book a $100 coaching session with us. We’ll hear you out, go through your grant documents and dates with you, share ideas on what to ask for, and talk through how you might move forward. We work with people in all 50 states, and you stay the one negotiating and signing, because this is coaching and not legal or tax advice. Book a coaching session by emailing formamerica@protonmail.com
The complete Before You Sign series
This is the last article in the series. Read together, the nine parts follow a job from the offer packet to the final paycheck, and they all come back to the same idea: the company wrote the paperwork to protect itself, and you’re entitled to read it, question it and negotiate it.
- Every severance offer is a first offer. How to read a severance agreement, run your own risk analysis and negotiate without hiring an attorney.
- At will doesn’t mean any reason. Where at-will employment ends and the protections for workers 40 and older, other protected classes and people who raise concerns begin.
- Family leave isn’t a favor. How FMLA leave works, why you don’t need permission, and how to get it in order before you share your plans.
- Your non-compete depends on your state. How state law treats non-competes and other restrictive clauses, and how to negotiate them on the way out.
- Put on a performance improvement plan? What a PIP really means, how to answer it, and why a resign-now offer is rarely the deal it looks like.
- What to check in an offer letter or employment agreement. The clauses that decide how a job ends, and how to negotiate them before you start.
- Can your employer change your compensation plan? The fine print that gives companies room, and where the law draws lines.
- Unpaid commissions after you leave. When a commission is earned, where state wage laws help, and how to recover what you’re owed.
- What happens to your stock options and RSUs when you leave (this article).
A note on what this is
Before You File publishes legal information, not legal or tax advice. I write these articles as a writer, not as a lawyer, paralegal or tax professional acting on anyone’s behalf, and an attorney does not review them. Equity plans differ widely, state and federal rules change, and the tax consequences of exercising or selling can be significant, so treat this as a starting point for your own reading and decisions. For a large grant, an exercise decision at a private company or an executive equity agreement, talk with a tax professional, and consider a licensed attorney in your state, before you act.
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