Contractors and equity

Typical situation

As a South African contractor, I want to exercise my stock options. What should I do?

Let’s look at an example exchange between Thulani, a South African contractor, and a People Ops representative about equity.

Thulani, working from Cape Town as a product designer, was contracted via Remote by a U.S.-based company, Cherry Blossom, which uses Carta to manage its equity compensation. Having been at Cherry Blossom for a few years, he feels ready to move on and create his own company, and he has vested all his stock options. He reaches out to Megan, People Ops at Cherry Blossom, to understand what he needs to do to exercise his options and to help him get everything sorted.

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Without Easop

Megan: Hey, Thulani. I’m sorry for the delay, but I’m not quite sure what the next steps are for you. Have you done any research on your country's tax laws? Or maybe check Carta; they have some useful blog content on equity and tax.

Thulani: Yeah, I’ve checked the blog, but it’s mostly focused on U.S. taxation and compliance.

Megan: Right, maybe try more generally on Google.

Thulani: I did that as well, but there are either outdated PDF academic papers from the early 2010’s, or advertising material for some dodgy loan agency. Nothing gives me any clear next steps.

Megan: Unfortunately I don’t think our U.S. legal team is qualified to help – they don’t have expertise in the South African tax code, and this isn’t something we want to get wrong. We don’t want any errors in your tax filings, and we don’t want to expose the company to any non-compliance penalties. I’d love to help, but we can’t afford to hire a local Cape Town firm to look into it since you’re the only one there. It could also take many months to complete.

Thulani: Ok, I’ll ask around if someone can recommend a tax advisor but my network is limited.

Remote-friendly companies offering equity to contractors should also expect to make country-specific information about the equity easily accessible, no matter how many team members are in the given country. Thulani needs to know what equity means and what his obligations are, and be able to get all of the most important questions answered, just like any other team member.

In the end, it’s in the interest of both Cherry Blossom and Thulani that everything is done right. And since it impacts Cherry Blossom’s cap table, it’s also in the interest of its investors.

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With Easop

For both Thulani and Megan, adopting Easop into the equity process will ease many headaches. Megan can navigate conversations like the one above comprehensively and transparently, and without much legal friction (if any!). And Thulani will have received access to a personal grantee portal, like any other team member–U.S. and non-U.S.–who has received equity.

He’s now able to see:

• A clear breakdown of his equity–free of legal jargon–on what stock options are and how they work, and easy-to-read information on the meaning of terms such as strike price, vesting schedule, fair market value, and NSO;
• A thorough FAQ reflecting the most common concerns and questions of Easop users in South Africa;
• Contact information of South African lawyers or personal tax advisors in case he wants to receive personal tax or financial advice;
• An individualized overview of his current grants displaying details, like:
• How much stock options have vested over time,
• What he has to pay in order to exercise his stock options,
• If, when, and how he would be taxed, and
• If he needs to report something to his local bank at the time of grant or exercise to comply with foreign exchange regulations (and, in South Africa, he would).

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Conclusion

If Megan’s situation sounds familiar, reach out to us at <a class="article-overlay">Easop</a>.

If your experience is similar to Thulani’s, talk to your managers and tell them Easop is here to make both of your lives easier for anything relating to equity.

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The article above is published for general information purposes only and does not constitute legal advice.

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