The Question: We are considering a Tender Offer to allow tenured employees the opportunity to sell a portion of their vested shares. Wanted to poll this group for a few things: (1) any experience with Carta? (2) did you engage a tax consultant to give general (not employee-specific) guidance on how stock options are taxed? (3) If you had international employees, any regulatory or tax issues having those employees participate?
Key Tips from Guild Members
Member 1: We ran our first Tender Offer late last year, on the back of our Series E, where we were oversubscribed (and also had a set price). We did not use CartaX as they had just come out of beta, we used Nasdaq Private Markets (NPM). The platform was good but the sync on the back end with Carta was a nightmare, so I would probably do it differently next time. We had the Co tax advisor, KPMG, present to relevant EEs prior to the tender offer launch but did not facilitate personal tax advice. We had EEs in Canada and India that were eligible for the offer and consulted with relevant tax experts.
Member 2: We ran our secondary buyback on Carta. We consulted with tax advisors both in India and US. Have explored the ESOP issues in UK, as well. Broadly it is complex and the easy route advised was to pay as an incentive or bonus.
Member 3: We completed a tender offer through Carta last fall on the back of Series D (good experience). Carta led a couple of sessions on general tax considerations, we did not engage a firm to also offer personal advice/consultations. We did not have any eligible employees overseas at the time, so did not navigate any international complexities.
Member 4: We did our first tender ~5 quarters ago and are actually in the middle of our second tender. Here are a few hopefully helpful thoughts:
1. We used Nasdaq the first and second time. Both times the decision was based on more favorable pricing. Agree with Avi that syncing with Carta with post tender is not fun
2. We worked with Deloitte on the taxation element and had a couple of high level slides explaining key considerations (capital gains vs non qualifying disposition etc)
3. We have individuals working for us in the UK, Canada etc but they are currently contractors so we did need to have some specific disclosures on the offer to purchase document but since they are currently contractors there was no tax withholding/reporting
Member 5: Happy to share a few thoughts here:
1. We used Carta a few months ago. Overall good experience. Carta came in to do a session to employees but this was clearly communicated as not being “tax advice”. We encouraged employees to consult with their own tax advisors and made it clear that the company cannot provide any tax advice. We also distributed a short FAQ (eg on QSBS).
2. The tax side was somewhat painful. We wrote a memo to summarize our position that the structure of the tender will not require accrual or disclosure of a contingent tax liability under ASC 450. We engaged RSM to provide an opinion that the transaction was not taxable to employees. We also had multiple conversations with our auditors and their national team to bless the transaction structure.
3. No international employees were eligible at the time. You would want to discuss with local counsel since there could be country specific language you would need to add to the Letter of Transmittal.
Member 6: I worked with Nasdaq Private Market. Great experience.
Member 7: Few of my thoughts below:
1. I have done 3 tender offers (over 2 companies) over the last 4 years and always used Nasdaq Private Market (NPM). So I do not have direct experience with Carta.
2. We did not use any external tax advisory firm. In all cases, the legal and accounting teams took care of the questions and determining withholding if there was a compensatory component. In one case, we had an external tax advisor already engage permanently with the company and leveraged him for the most complicated situations.
One thing we did in all cases was to have discussions with our auditors (Deloitte) on the tax treatment (compensatory component or not) and align with them on the approach. In a couple of cases we talked to their tax team to ensure we had the high level approach right. But otherwise the details were handled in house. However, I would have happily paid for some external tax advisors (you may also decide to make it part of the secondary fees so it could be neutral for the company) and taken the load off the teams (but the teams decided they would handle it).
3. In all 3 cases, we had international employees (for sure in UK and other parts of Europe, but I do not think in Portugal or France). We let them participate.