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Equity Compensation

Preparing for Your Company's IPO: An Employee's Checklist

Before an IPO, employees can map their equity, estimate the tax on RSUs and options, learn the lockup rules, and set a selling plan in advance.

Preparing for Your Company's IPO: An Employee's Checklist

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The short answer

  • An IPO can turn illiquid equity into sellable stock, but it also brings a large tax bill, trading restrictions, and concentration in one company.
  • The useful preparation is a clear inventory of what you own, a tax estimate, the lockup and trading rules, and a written selling plan.
  • Decisions made months before the listing, such as exercising options, can matter as much as decisions made after it.
  • Most of this work can be done before the company's registration statement becomes public.
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Full Guide

The short answer

  • An IPO can turn illiquid equity into sellable stock, but it also brings a large tax bill, trading restrictions, and concentration in one company.
  • The useful preparation is a clear inventory of what you own, a tax estimate, the lockup and trading rules, and a written selling plan.
  • Decisions made months before the listing, such as exercising options, can matter as much as decisions made after it.
  • Most of this work can be done before the company's registration statement becomes public.

How is the company going public?

  • In a traditional IPO, the company sells new shares through underwriters, and insiders usually agree to a lockup.
  • In a direct listing, existing shares begin trading without an underwritten offering, and lockup terms may be shorter or absent.
  • A merger with a special purpose acquisition company (SPAC) takes the company public through a deal with its own lockup and redemption terms.
  • The route determines when you can sell and how the opening price is set, so read the company's communications closely.

Inventory what you own

  • List every grant: incentive stock options (ISOs), nonqualified options (NSOs), RSUs, and any shares already held, with vesting dates and prices.
  • Many private-company RSUs are double-trigger: they vest for tax only after both time-based service and a liquidity event such as the IPO.
  • That means years of accumulated RSUs can become taxable at once, often at or shortly after the listing.
  • Shares acquired at original issuance may qualify for QSBS; for stock issued after July 4, 2025, the exclusion is 50%, 75%, or 100% after three, four, or five years.

What will the taxes look like?

  • RSU income is ordinary income at vest; companies often withhold federal tax at the 22% supplemental rate, or 37% above $1 million.
  • If your marginal rate is higher than the withholding rate, you may owe more at filing, so estimated payments are often needed.
  • Paying 110% of last year's tax through withholding and estimates generally avoids an underpayment penalty when prior-year AGI exceeded $150,000.
  • ISO exercises can trigger alternative minimum tax, and selling ISO shares within the required holding periods converts part of the gain to ordinary income.

When can you sell?

  • Underwritten IPOs usually include a lockup; terms vary, but the SEC notes most bar insiders from selling for 180 days, and some also limit sales over time.
  • After the lockup, employees can generally trade only during open windows set by the company's insider trading policy.
  • A Rule 10b5-1 plan lets you schedule sales in advance; non-officers face a 30-day cooling-off period, officers and directors 90 to 120 days.
  • Officers, directors, and other affiliates may also face Rule 144 volume limits and filing requirements.

How can you decide what to sell?

  • Start with cash needs: the tax bill, an emergency reserve, and near-term goals like a home purchase.
  • Decide in advance what share of your net worth you are comfortable holding in one company, and why.
  • Pre-set rules, such as selling a fixed portion at each window, can reduce the pull of day-to-day price moves.
  • Charitable gifts of long-held shares and other strategies have their own rules and limits, so review them with a CPA.

Key takeaways

  • Know the listing route, your grant types, and when double-trigger RSUs will become taxable.
  • Plan for withholding shortfalls, AMT on ISOs, and estimated tax payments before the vest arrives.
  • Map the lockup, trading windows, and any 10b5-1 cooling-off period into a written timeline.
  • This is general education, not tax or investment advice; confirm tax figures with a CPA.
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