• October 2018
    M T W T F S S
    « Sep    
    1234567
    891011121314
    15161718192021
    22232425262728
    293031  

If I hold 3% equity in a startup, can I sell all of my shares at the Series A to the VC? If so, how often does this sort of thing occur, and would I need to have a specific warranty in my shares when I was first issued them to allow for this?

There are really two central concerns here: (1) investor reaction, and (2) the mechanics of the deal.

Investor reaction should be considered since your desire to sell – regardless of whether you’re able to or not – could be perceived as a red flag regarding the company’s strength and future potential.

The mechanics of the sale could be much more involved. An evaluation of your employment agreement, if you have one, the operating agreement or bylaws, and all other corporate documentation needs to be assessed in combination with any stock option agreements you have.

You say that your options aren’t vested, which means you don’t yet own them. You can’t sell what you don’t own, so it sounds like there may not be anything that you can sell – unless your options are otherwise assignable.

Under general contract law, contract offers are not assignable by the recipient to third parties. Assignment basically means transferring legal rights or responsibilities in connection with the subject matter of the contract. An stock option contract that is not restricted, however, could be assignable (i.e., sold to a third party), depending on what the option agreement and other documents (employment and operating agreements) provide.

Also, even though the general prohibition on stock option assignments was eliminated back in the mid-1990s, there are still some types of options that remain legally non-assignable, even for privately held companies. You need to determine what type of options you have. For instance, if they’re issued under an employee stock option purchase plan, then the options are not legally assignable to anyone other than your estate and heirs. If you have ISOs (Incentive Stock Options), they’re not assignable at all.

Since you specifically stated that your equity isn’t vested, it wouldn’t be possible to sell your 3%, or any portion thereof, until it did partially or wholly vest. Even then, there could be conditions or restrictions.

In sum, there’s are too many variables that impact a clear, concrete answer to your question and not enough information. You really need to consult your own independent attorney (not a company lawyer), to help you resolve this question.

To find out more about your rights to sell your equity to a VC, please feel free to check out LawTrades. for guidance from experienced startup attorneys who can help you answer all of your questions. Don’t hesitate to message me directly with your questions if you’re still unclear.

Legal is hard. Let’s tackle it together.

Speak to one of our Legal Pros and discover how we can help.

Let's Talk

Comment

There is no comment on this post. Be the first one.

Leave a comment

[if lte IE 8]
[if lte IE 8]
[if lte IE 8]
[if lte IE 8]
[if lte IE 8]
[if lte IE 8]
[if lte IE 8]
[if lte IE 8]
[if lte IE 8]
[if lte IE 8]
[if lte IE 8]
[if lte IE 8]