Introduction

This article explains how to exercise your eligible stock options. To learn more about stock options in general, check out our Equity 101 article.

Click on the links below to jump to that section of the article:

Exercising options overview
What you'll need to know before exercising
The Exercise Options workflow
Associated documents
Filing your 83(b) election
FAQs

Exercising Options Overview

To exercise options, first, click on My Equity to view your available grants. Grants with an Exercise Now button have options available for exercise. Here’s what will happen:

Select the number of shares you want to exercise.
Sign the Exercise Documents and secure spousal consent (if applicable).
Pay for your shares.
Use the system to submit the documents for approval.
A company representative will approve the documents.
The Secretary and President will sign the electronic common stock certificate.

If you exercised unvested shares (early exercise), don’t forget to consider filing an 83(b) with the IRS within 30 days of purchasing the equity. You can access the workflow for completing your 83(b) on the transaction table next to the eligible grant.

What You'll Need to Know

Here are some of the topics you’ll need to make decisions about before you exercise your options:

Which grant to exercise: If you have several grants, you’ll need to pay attention to which grant you want to exercise. Different grants may have different vesting schedules and exercise prices.
Number of shares: You can exercise any portion of your eligible shares. The system will assist you with the math, but you can use the formula below to plan ahead. The exercise price can be found in your ISO/NQO Grant and Agreement.
- Number of shares × Exercise price = Purchase price
Tax implications: There may be tax obligations based on which grants you exercise. If you have any questions, you should consider talking to your attorney or tax advisor.

The Exercise Options Workflow

You can start the Exercise Options Workflow from the My Workspace page by clicking on Start New Workflow > Exercise Options or by clicking the Exercise button next to an eligible grant in the My Equity page. Follow these steps to run the workflow:

From the dropdown menu, select which grant you wish to exercise. Note that if you want to exercise more than one option grant, you will need to run the workflow again for each grant.
The Let's Get Started page will show an overview of the exercise process, and the total number of shares vested and available to exercise. When ready, click Continue.
Select the number of options you want to exercise. You can select a specific number of options, all vested options, or, if your grant allows, all options, including unvested shares. The platform will calculate the cost to exercise, which is the number of shares multiplied by the exercise price as stated in the related option grant agreement.
Select how you wish to pay for your option exercise in the Payment Type dropdown menu.
1. If the issuing company has enabled Online Payments, you can pay for your exercise via an ACH or SEPA payment by selecting Online. See this article for more information on the Online Payments feature.
2. To pay via cash, check, or a wire transfer outside of the platform, select Offline.
Review and sign the option exercise form by clicking the Sign Document button, and click Submit.
At the checkpoint, you'll have a chance to review the exercise before sending the documents to the company. To move forward click Continue.
If you selected to pay via an online payment, you'll be prompted to connect your bank account through our third-party payment processor, Stripe. If paying offline, it is your responsibility to coordinate with the issuing company on how to make your payment.
Once submitted, your exercise request will be sent for approval to the issuing company. If accepted, they will generate and issue the resulting stock certificate. If necessary, you can click Cancel Transaction to cancel the exercise before it has been accepted by the company.

Associated Documents

Below is a sampling of the documents that may be generated in the Exercise Options workflow. Note that the documents vary based on whether or not the exercise includes unvested shares.

When exercising vested shares

Option Exercise: Contractual agreement for the purchase of stock in the company at the exercise price. The document includes any limitations regarding the resale, transfer, and distribution of the shares.

Electronic Stock Certificate: The electronic stock certificate is evidence of your purchase of the company's stock. You can always find your stock certificates and all of your equity-related documentation in My Documents on your My Workspace page.

When exercising unvested shares (early exercise)

Option Exercise and Restriction Agreement: Contractual agreement for the purchase of stock in the company at the exercise price. The document includes any limitations regarding the resale, transfer, and distribution of the shares. Further, the Restriction Agreement describes the terms under which unvested stock may be repurchased from the grantee.

Stock Power (in blank): In accordance with the Restriction Agreement, purchased unvested shares are subject to repurchase by the company under certain circumstances. The Stock Power is a blank, signed document completed by the company at the time of the stock repurchase.

Filing Your 83(b)

If you exercise unvested options, you should consider making an election under Section 83(b) of the Internal Revenue Code. Filing an 83(b) can have important tax consequences. You should consult a tax advisor as to the advisability of making the Section 83(b) election.

The system will assist you with filing your election using the File 83(b) workflow. Grants that are eligible for the election will have a File 83(b) option next to the appropriate grant in the My Equity page. It is your decision whether to file an 83(b), and although the system will make a cover letter and a Section 83(b) election form for you, only you can legally file the form. More information on 83(b) elections is available in IRS Publication 525 on the IRS website.

It is important to note the following: if you decide to make the election, you only have 30 days from the date you purchased the equity to file with the IRS. After you file the 83(b), you will receive proof of your filing from the IRS. Upload the proof of filing to provide your company with evidence of your election, and complete the workflow.

FAQs

Can I log into Fidelity Private Shares even if I've been terminated? Yes. This is why the system asks not only for your work email, but also for your personal email. This way, you can log in to the system if you lose access to your work email as a result of your termination.

Do my stock options expire? Stock options will expire over time, typically after 10 years, but your issuing company may have different terms. If you leave the company, typically, you have a limited time to exercise any vested shares. See this article for more information about vesting and what happens when you leave a company.

Can I exercise more than one option grant at the same time? Yes, if you have multiple eligible option grants, you can choose to exercise them at the same time. However, each grant must be processed individually; you’ll need to run the Exercise Options workflow separately for each one.

Why is my spouse being asked to sign a document? If you live in a state with communal property laws, you may be asked to have your spouse sign a consent. If this does not apply to you, then you can select to skip that step.

Who do I send my payment to? If the company has enrolled in Online Payments, you can link a bank account through Stripe to pay for your exercise. Otherwise, you will need to send payment to the company, and you should confirm with a company representative on how and where to send the funds.

Can I switch payment methods? If you want to switch between an online and offline payment, you'll need to discard the exercise workflow and start over. If you select to pay offline and want to change your payment method (e.g., cash instead of a wire transfer), double-check with the issuing company if any changes need to be made.

Why do I have no options available to exercise? There are a number of reasons why you have no options available to exercise. It could be that the vesting schedule has not been met yet, there is a vesting condition that has not yet been met, or the shares have expired. You can reach out to the issuing company if you have questions about the eligibility of your option grants. See this article for more information on vesting schedules.

Can I transfer my option grants? Your option grant cannot be transferred, but once shares have been exercised, you can work with the issuing company to transfer your shares into a trust or to a different holder.

Why can't I exercise all of my options? Generally, you can only exercise options that have the vesting restrictions in place, which could be a time-based restriction or once a certain milestone or goal has been met. Some plans may allow you to exercise unvested shares, known as early exercise, but this is not always the case. If you have questions about why your shares have not yet vested, you should reach out to the issuing company for additional information.

I finished the exercise workflow, where is my stock certificate? Exercises need to be approved by the issuing company. Once approved, they will verify that the funds for the exercise have been met and will send the certificate out for signature. If the company has not accepted the exercise request in 30 days, the workflow will return to you. Once your stock certificate is ready, you'll be notified to accept your stock certificate in the platform.

Will my cost to exercise change over time? Typically, the exercise price per share does not change over time, even if the company's fair market valuation of the company changes over time. However, although uncommon, a company may adjust the strike price of stock options, known as a reprice, and the company may need to solicit board and stockholder approval before this can happen.

Why are my options so expensive? The exercise price of a stock option is usually tied to a valuation of the company known as a 409A valuation, that is typically done through a third-party. This valuation determines the fair market value (FMV) of one share of common stock and is generally used as the basis of the exercise price for your stock options. These valuations typically happen annually or when there is a material event that significantly impacts the company. The FMV can also change over time, and as the company grows in value, the FMV can increase.

Do I need to pay taxes when I exercise? You may be responsible for taxes when exercising your stock options based on a number of factors, including but not limited to your state and country of residence, type of stock option, yearly income, household size, and vesting schedule. In addition to taxes upon exercise, there may be other tax considerations, such as alternative minimum tax (AMT) and capital gains tax, when selling shares. Some companies may include an estimated tax calculation when exercising, but it is important to know of any and all tax obligations if you choose to exercise. This article has additional information on how equity awards are taxed, but it may also be wise to speak with a tax professional to understand your individual situation and potential obligations.

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Third parties mentioned and Fidelity Private Shares LLC are not affiliated.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

Fidelity Private Shares LLC provides cap table management and other administrative services to private companies and their equity compensation plans.

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