Bill will help startup employees who receive tax bills for illiquid stock options
WASHINGTON, DC – The National Venture Capital Association (NVCA) issued the following statement today after the U.S. House of Representatives passed H.R. 5719, the Empowering Employees Through Stock Ownership Act.
“Most cash strapped startups dedicate their financial capital to developing and building new products and services, making stock options a critical tool to building strong teams,” said Bobby Franklin, President and CEO of NVCA. “Talented startup recruits are happy to accept less in salary in exchange for stock options because they know that if the startup succeeds, everyone shares in the gains. This is the secret sauce that underpins the innovation economy, aligning the interests of the startup founders, their investors and team members to drive value creation for the country.”
“Unfortunately, as the U.S. capital markets have become hostile to small capitalization companies, startups are now choosing to stay private longer rather than pursue an IPO. This creates challenges for startup employees when their stock options vest without a liquid market to sell their stock to pay the taxes due,” added Franklin. “With passage of this important legislation in the House today, lawmakers recognize how important stock options are to maintaining a strong entrepreneurial ecosystem and agree that startup employees shouldn’t be forced to pay taxes immediately on phantom income they haven’t received. We are excited to see Congress take a step towards updating the tax code to reflect the realities of the entrepreneurial ecosystem. We applaud Congressman Paulsen and Congressman Crowley for their leadership on this issue and thank Majority Leader McCarthy for spearheading the Innovation Initiative of which this bill is an important component.”