Your IPO journey is not one continuous path. From an equity compensation perspective, there are actually three distinct touchpoints along the road, each requiring different support for you and your employees. It pays to recognize the signposts.
The To Phase: Supporting Employees Before the Big Day
The closer you get to the IPO launch, the more critical it is to prepare employees for what they can and can’t do with their shares once the company goes public. They’ll need to develop a cohesive strategy that covers whether they want to turn these assets into cash, as well as when—and which—shares to sell. They’ll also have to consider what to do with the proceeds of any sales they make.
So, in the time leading up to the big day, you’ll need to have supports in place that help them navigate these issues, understand new equity programs, and manage their tax burden post-IPO.
For example, those with early exercisable stock options will want to know what happens if they buy or sell their shares before their option has vested. With restricted stock, they’ll seek information on 83(b) elections so they can potentially avoid a tax hit by accepting the market value of shares at grant
—rather than at vest. And if they hold dual class stock, they’ll need to have a clear picture of how that impacts their voting rights.
These matters can be complicated, but a good provider can help everyone steer a course through the process.
The Through Phase: The Ins and Outs of Buying and Selling
In the six months following the IPO—or whatever the duration of your lock-up period—employees are usually restricted from selling shares. But your company and underwriters may agree that an early release program is advisable to take advantage of a successful IPO. In that case, employees can sell some shares over a controlled period. But they may need help determining if and when they can sell shares and how early release programs work. And they’ll definitely need to grasp the subtleties and legalities that can affect their right to divest. For example, if they hold restricted securities, they can’t freely trade them in the marketplace. The same thing applies to control securities that were initially held by a director, executive, or large shareholder of the issuing company.
You may decide to launch an employee stock purchase plan (ESPP) with your IPO. If you do, it’s especially important that your provider has the ability to support you as you make the plan a reality.
The ability to help employees manage equity programs through the lock-up is an important consideration in selecting a broker.
The Beyond Phase: Dotting the Is and Crossing the Ts
The day finally arrives when lock-up is over, restrictions are lifted, and your company is fully public. In this phase, plan administration takes on a whole new shape as a public company. Your work is just beginning, because you now have new requirements that are ongoing, complex, and demanding. Preparing to meet these requirements is critical if you’re to keep your company in good standing.
Clear and transparent financial reporting, which entails filing periodic documents to keep your investors aware of your company’s position, is a legal obligation—and crucial. Having to produce and deliver quarterly and annual reports may take some getting used to, but the quicker you adapt to that rhythm, the easier the process is likely to become.
Your newly public company must also disclose information on operating results, how you compensate management, and much more. Legal responsibilities aside, effective communication with your employees, investors, analysts, and the media will encourage their support of your company. Thus, getting your message across accurately should always be a key consideration.
Equity professionals will find a helpful roadmap for navigating all three phases of an IPO in IPO: To, Through and Beyond, A Roadmap for Equity Professionals a new Thought Leadership piece from Fidelity.
“IPO Journey: First Steps to Going Public” is reprinted from NASDAQ IPO Playbook, October 2021, as part of a paid advertisement by Fidelity Stock Plan Services, LLC. The statements and opinions expressed in this article are based on insights provided by Fidelity but modified by the author, Rosa Harris, Media Analytics Group. Fidelity Stock Plan Services, LLC cannot guarantee the accuracy or completeness of those modifications.
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