Transfer of stock of non-public company after vesting

Question

Suppose an employee of a non-public company has "some" stock options. Can that person, after vesting, generally transfer the ownership of some of those (exercised) shares to another party?

I want to reveal as little as possible, but... a friend of mine is working for a startup with a meaningful stock option plan. He has found himself on an "improvement plan" shortly before his first big vesting cliff. All signs seem to indicate that they have set up unreasonable goals for him and just want a nice, unambiguous metric they can point to when they fire him.

His "goals" intersect with my skills nicely and he has asked me to help him get through this. As a friend, I'm happy to help. But if I put forth the effort required, I could in theory spend many, many hours on this and see much frustration.

He has offered to compensate me, but in very non-specific terms. What I had in mind from the beginning was "5% of this particular chunk of stock options". But there are obviously (in retrospect) many complicating factors. What if he choses to hang on to the stock, while it plummets, or conversely chooses to sell it as the value skyrockets, etc, etc.

What would be more cut-and-dried would be 5% of this particular chunk of stock options... in the form of stock.

Is that possible? If not, do any alternatives come to mind? Do I need to just call a lawyer now... or?

Answer 1

If the company is non-public, your hands are tied. Most startups have a Stock Option Plan with specific rules on the shares. In almost all cases, they have a Transferability clause preventing transfers of options and shares unless approved by the company (who would almost always say no). Additionally, they usually have a Right of First Refusal (ROFR), which states that if shares are going to be transferred, the company gets the chance to buy it first. In your case, the company may argue your friend would sell you the shares for free and the company would exercise their ROFR and buy back the shares for free.

There is not much you can do in this case. You may be able to write up a contract between your friend and you, but it would be costly and possibly not worth the effort. You may be better off asking for a lump sum or some other sort of compensation.

Additionally, your friend might want to be careful with this idea. You could potentially gain access to sensitive company tools/documents which could get them in a lot of trouble.