Executive Summary
When a private equity firm buys your company, your vested shares and options usually get cashed out at the deal price. Your unvested grants get cancelled or rolled into a new plan with fresh terms. What actually lands in your account comes down to your strike price and your vesting schedule. This guide gives you the exact order to check everything so the number you expected matches the number you get.
Start With One Subtraction
Everything begins with a single calculation. Take the per-share price the buyer is paying, subtract your option strike price and multiply by the number of vested options you hold.
That is your gross spread. Nothing else matters until you know it.
Say you hold 10,000 options at a $5 strike. The buyer pays $20 a share. Your spread is $15, so your gross value is $150,000. Now flip it. If the buyer pays $3 a share, those options are underwater. Underwater options usually get cancelled for zero, with no cash and no rollover.
Step 1: Sort Your Grants by Type
Incentive stock options, non-qualified options, restricted stock units and employee stock purchase plan shares all behave differently in a buyout. You cannot plan your tax bill until you know which bucket each grant sits in.
Most private companies hand out non-qualified options. The spread on those is taxed as ordinary income. ISOs can trigger the alternative minimum tax when you exercise. RSUs are usually taxed as income at vest and in PE deals they often carry a double-trigger clause that needs a termination after closing to pay out.
Pull your grant documents. Label each one. This takes an hour and saves you thousands.
Step 2: Read the Vesting and Acceleration Language
Two phrases decide whether you walk away with a full payout or a partial one. Single-trigger acceleration vests everything the moment the deal closes. Double-trigger acceleration only vests your remaining shares if you get fired or pushed out within a set window after the deal.
A $200,000 unvested grant under single-trigger is worth $200,000 at closing. The same grant under double-trigger might be worth nothing if you stay employed and keep vesting on the old schedule.
Step 3: Understand Cash-Out and Rollover
The buyer will treat your grants in one of a few ways. Cash-out means the company pays you the spread in cash and cancels the option. Rollover means your old equity converts into equity in the new holding company.
Rollover sounds generous. Read it closely. Your rolled equity usually gets a brand new vesting schedule, often four years with performance hurdles tied to the sponsor’s return. You also become a minority holder with almost no control. Drag-along rights mean you sell whenever the sponsor sells, whether you like the price or not.
Step 4: Run Your Own Tax Math Before You Celebrate
Take the same $150,000 spread on non-qualified options. It gets taxed as ordinary income. At a 37% federal rate that is roughly $55,500 gone before state tax touches it.
Now compare that to exercised stock held over a year. Part of that gain could qualify as long-term capital gains at 20%. The difference is thousands of dollars and it depends on decisions you make months before the deal is announced.
Add the 280G golden parachute rule. If you are an officer or a highly paid employee, payments above three times your base salary can trigger a 20% excise tax. Many deals include a cutback or a shareholder vote to soften this. Ask which one applies to you.
Step 5: Check Whether You Qualify for QSBS
Qualified small business stock under Section 1202 can exclude up to $10 million in capital gains or 10 times your basis, if you held original-issue stock for five years. A private equity buyout that cashes you out early ends that clock.
If you hold qualified shares and the deal is close, the timing of your exit matters as much as the price. Roll your proceeds into a new C corporation and the new stock probably will not qualify, because it was not issued directly to you by a qualifying business at the start.
Step 6: Check the Leaver Rules on Rolled Equity
Good leaver and bad leaver clauses control what happens to your rolled shares if you quit or get let go. A good leaver keeps vested equity. A bad leaver can forfeit unvested shares and sometimes sells vested ones back at cost.
Sign nothing until you know which category you fall into and what triggers it. Quitting to join a competitor can turn a $300,000 position into a $0 position overnight.
Step 7: File Your 83(b) On Time
If you early exercise restricted stock, you must file an 83(b) election within 30 days of the grant. Miss that window and you pay tax as the shares vest instead of on the current low value. This is one of the few deadlines the IRS does not forgive.
The Order to Work Through This
- Find every grant and its strike price.
- Label each grant by type: ISO, NSO, RSU or ESPP.
- Read the acceleration clause.
- Learn whether the buyer is cashing out or rolling you into new equity.
- Run your tax estimate with an accountant, not a spreadsheet you found online.
What to Do This Week
Open your grant documents today. Write down your strike price and your acceleration terms on one page. Send that page to a tax advisor who has handled at least one private equity buyout. Ask them two questions: what is my after-tax number and what should I do before the deal closes.
Read the full guide: What Changes After a Private Equity Takeover: A Primer for Operators