1. What terms can I expect when partnering with ECP?

    • Please visit this link for an overview of our standard terms.

  2. What is ECP's process?

    • Please visit this link for an overview of our process.

  3. What is the difference between an ISO and an NSO?

    • There are a few major differences between ISOs and NSOs, namely around those who qualify for each and around the tax consequences. While only employees qualify for ISOs, both employees and independent contractors qualify for NSOs. The tax treatment is where it gets tricky. For ISOs, you are not required to pay personal income taxes upon exercise but you are subject to AMT treatment on the spread between the FMV of the stock and your exercise price. However, the kicker is that you are only allowed to exercise up to $100,000 worth of newly vested ISOs per calendar year. Every dollar exercised over that amount will be subject to NSO treatment. This is typically called the ISO/NSO split. There are a few key benefits to ISOs. Since ISOs are not subject to employment tax withholding, you are not required to pay any taxes at the time of exercise. When you sell your stock, if you have held your shares for at least two years after the grant date and at least one year after the exercise date, you qualify for long-term capital gains tax treatment on the spread between the sale price and your exercise price. This can be a significant tax saving, think 40.0% vs. 20.0% tax rate on the spread. On the other hand, NSOs are more simplistic when it comes to tax treatment. Upon exercise, you are required to pay personal income taxes on the spread between the FMV of the stock and your exercise price to cover the employment tax withholding. However, you are not subject to AMT treatment. If you hold your shares for at least a year before selling, you are granted long-term capital gains tax treatment on the spread between the sale price and the FMV of the stock at the time of exercise. ECP is not in a position to give tax advice. We recommend you consult with a tax professional to better understand your tax treatment on your option exercise.

  4. What is the Alternative Minimum Tax (AMT)?

    • The AMT was established to prevent high-income taxpayers from paying too little in taxes by taking certain deductions such as property taxes, or exclusions such as the spread on the exercise of an ISO. AMT is simply another way to calculate federal taxes owed for certain filers. Why is this important? When you exercise your ISO, you may be required, in the following calendar year, to pay AMT on the spread between the FMV of the stock and your exercise price. Calculating your AMT is a complicated exercise and depends on multiple factors such as your tax bracket, deductions, capital gains, and state and local income taxes. While ECP is able to cover the anticipated AMT cost, we recommend you consult with a tax professional about the appropriate amount.

    • A benefit to paying AMT is the tax credit that you can apply to your future tax bills. In any subsequent year where your regular tax exceeds your AMT, you are able to offset by some amount of AMT paid in previous years. Depending on your situation, this can represent substantial tax savings.

    • Please visit this article for more information on AMT and how you can go about calculating it.

  5. How do I calculate my exercise cost?

    • Your exercise cost is simply the amount of vested shares you wish to exercise multiplied by the associated strike price for those shares. For example, if you have 100,000 vested shares you wish to exercise and your strike price for those shares - assuming it is the same for all 100,000 - is $1.00, then your exercise expense is $100,000.

    • 100,000 x $1.00 = $100,000

  6. How do I calculate my NSO tax liability?

    • Your tax liability for NSOs is calculated by taking the spread between the FMV of your shares and your exercise value, multiplied by your personal income tax rate. For example, if you have 100,000 vested shares with a strike price of $1.00, and the FMV of those shares is $5.00, then your tax liability - assuming a 40.0% personal income tax rate - is $160,000.

    • ((100,000 x $5.00)-(100,000 x $1.00)) x 40.0% = $160,000.

  7. When am I required to sell my stock?

    • In an IPO, we require you to sell your stock after the lock-up period, which is typically 90 - 180 days. In certain situations, we will make an exception for employees who are months away from receiving long-term capital gains on their stock.

    • In a M&A transaction, you are required to sell your stock when the company is sold.

  8. Am I required to transfer my shares to ECP?

    • No. You remain the owner of your shares and will retain all of the benefits, such as voting rights, until your shares are sold.

  9. Does ECP cover the cost of previously exercised options?

    • Yes. If you have already exercised your options and would like a lump sum of cash for personal reasons, we will cover your previously paid expenses. These include exercise, AMT and tax withholding expenses.

  10. Can ECP finance an early exercise?

    • Yes. For select companies we will consider financing a current employee’s early exercise. However, please note, regardless of us partnering with you, if you decide to move forward with the early exercise on your own, please make sure you file an 83(b) election with the IRS within 30 days of your early exercise. This is key to receiving the tax benefits from your early exercise.