Before accepting a job at a startup that says it is preparing for an IPO, verify the equity grant, the rules for exercising or selling it, and the evidence behind the company’s timeline. Treat private-company shares as illiquid and any IPO date as uncertain: even after a listing, employee shares may be locked up. This U.S.-focused checklist explains what to ask for in writing and where the main financial and tax risks lie.
Start with the written offer and equity documents
A headline share count does not tell you what an award may be worth. Ask for the offer letter, equity plan, and proposed grant documents, then identify the instrument and its terms. The SEC explains that a stock option gives its holder the right, but not the obligation, to buy a specified number of shares at a strike price after vesting. The grant may also be expressed as a share count or as a percentage of the company’s capitalization. SEC: Common Startup Securities
- Instrument: Is the grant an option, restricted stock, restricted stock unit (RSU), or something else?
- Size and context: How many shares or units are included? Ask what ownership percentage that represents and what capitalization basis is being used, such as fully diluted shares. A number without that context is difficult to compare across offers.
- Approval: Is the grant conditional on board approval? When will the final award be approved and documented?
- Vesting: What is the vesting schedule and start date? What happens to vested and unvested awards if your employment ends, the company is acquired, or it goes public?
- Acceleration: Are there IPO or change-of-control acceleration terms? Confirm the exact conditions in the plan and grant documents rather than relying on a verbal summary.
For options, also check the strike price, how and when it is set, the expiration date, and the deadline to exercise vested options after leaving. Ask whether early exercise is permitted and what restrictions or tax consequences may apply. The governing documents—not a recruiting conversation—determine the award’s actual mechanics.
Can you sell before an IPO?
Assume private-company equity is illiquid unless the company documents a sale route you can actually use. The SEC says securities issued under Rule 701 are restricted and are not freely tradable unless they are registered or the holder can rely on an available exemption. Rule 701 is an exemption for certain securities sales made to compensate employees, consultants, and advisers; it does not itself give employees a right to resell their shares. SEC: Employee Benefit Plans – Rule 701
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Ask whether employees may participate in company-approved secondary sales and what approvals or restrictions apply. Check for transfer limits, company repurchase rights, rights of first refusal, or other conditions that could prevent or delay a sale. The SEC describes private-company shares as often illiquid and notes that a resale generally needs registration or an applicable exemption, such as Rule 144. A future IPO, acquisition, merger, or liquidation may create a liquidity opportunity, but none is assured. SEC: Exit Strategies and Liquidity
Will an IPO let you sell right away?
Not necessarily. IPO lockup agreements can prohibit insiders, including employees, from selling for a set period. The SEC says terms vary, but most lockups it describes prevent insider sales for 180 days. That is a general description, not a promise about any particular company or employee; the actual agreement and offering documents control. SEC: Initial Public Offerings—Lockup Agreements
Ask which restrictions could apply to your shares, when any lockup would begin and end, and whether the company or underwriters can extend or change it. Once a registration statement exists, check its disclosure and the relevant agreements. Also distinguish an IPO from liquidity: a listing can make shares publicly traded without making your particular shares immediately available for sale.
What taxes and cash could the equity require?
Find out whether an option is an incentive stock option (ISO) or a nonstatutory option before estimating taxes. Federal tax treatment depends on option type and circumstances. IRS Topic 427 says statutory options, including ISOs, generally do not create gross income at grant or exercise, but exercising an ISO may trigger alternative minimum tax (AMT). Special holding-period rules may affect the tax result when shares are sold. IRS Topic 427: Stock options
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For most nonstatutory options without a readily determinable fair market value, the IRS says there is generally no taxable event at grant; at exercise, the value of the stock received minus the amount paid is included in income. That can create a cash problem if tax is due while the shares remain unsold. Before exercising or making an election, establish how much cash may be needed for the exercise price and potential taxes, and get advice based on your award and circumstances from a qualified tax professional. This is general federal information, not individualized tax advice.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How to assess the startup’s IPO claim
Ask what “preparing for an IPO” means at this company and what specific milestones remain. Request relevant documents or evidence you are appropriately allowed to review, and distinguish completed steps from goals, projections, or an internal target date. The SEC and IRS guidance cited here explains general securities and tax rules; it does not verify a particular startup’s filing plans, capitalization, valuation, financial condition, or likelihood or timing of a listing.
When comparing offers, use the same questions for each company. Record the award’s type and size in capitalization context, vesting and departure terms, option exercise mechanics, documented resale possibilities, potential lockup restrictions, and likely cash and tax exposure. Evaluate the compensation and job on their own merits rather than treating a projected IPO as a guaranteed payout.
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Questions to get answered before accepting
- Can I review the equity plan and proposed grant documents before I accept?
- What is the award type, share or unit count, ownership percentage or capitalization basis, vesting schedule, and approval status?
- If it is an option, what are the strike price, expiration date, and post-employment exercise deadline? Is early exercise allowed?
- Can employees sell in an approved secondary transaction, and what transfer approvals or company rights apply?
- What IPO-related lockup or insider-trading restrictions could affect my shares, and where are those terms documented?
- What evidence supports the stated IPO stage and timeline, and what milestones are still outstanding?
- What cash could I need to exercise and cover taxes if I cannot sell the shares?
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