What Happens to Your Equity When You Leave a Company

When you leave a company, your equity does not disappear — but it is subject to strict post-termination rules. Unvested shares or options forfeit immediately. Vested options remain yours but can typically be exercised only within a narrow window (often 90 days). RSUs behave differently: vesting stops, and any unvested tranches are usually forfeited unless there is accelerated vesting in your severance agreement. Understanding these rules and negotiating them upfront can save tens of thousands of dollars in lost equity.

The post-termination window

When you leave a company, vested options do not disappear, but the clock starts ticking. You have a limited period — usually 90 days from your last day of employment — to exercise any vested shares. After 90 days, unexercised options expire worthless.

This window is strict. If you exercise on day 91, the shares are forfeited. Some companies extend the window for certain departures (resignation due to company relocation, involuntary termination without cause), sometimes to six months or one year, but the default is 90 days and should be confirmed in your grant agreement or offer letter.

The 90-day rule exists partly for accounting and tax reasons: once you are no longer an employee, the company wants to close out equity ledgers and avoid complications around non-employee exercisers. But from the employee’s perspective, 90 days is an extremely tight deadline if you are managing your departure timeline, negotiating with new employers, or relocating.

What happens to unvested shares

Unvested equity forfeits on your termination date. There are no exceptions in the standard grant agreement.

If you have a four-year vest with a one-year cliff and you leave after 18 months:

• 25% (one-year cliff) vests: You own this outright and can exercise vested options within 90 days.
• 6.25% (six months of post-cliff vesting): You own this outright and can exercise within 90 days.
• 68.75% (remaining 2.5 years of unvested shares): Forfeited immediately. You lose this equity entirely. Your grant agreement is amended to reflect the forfeiture, and your option count is reduced.

No tax is owed on forfeited shares (they were never in your taxable possession). But the opportunity cost is real. If the company exits weeks or months after your departure, your unvested equity would have been worth millions.

Accelerated vesting on termination

The standard rule — forfeit all unvested shares — is often negotiated upfront. In severance negotiations, one common request is accelerated vesting: a percentage of unvested shares vest immediately upon termination.

Common examples:

• Involuntary termination without cause: Vest 25% of unvested shares (or sometimes 100% for founders or C-level).
• Good-leaver provision: Vest 25% to 100% of unvested shares if termination is due to death, disability, retirement, or other “good” reason.
• Change-of-control acceleration: If the company is acquired, vest 50% to 100% of all unvested equity (single-trigger) or 50% to 100% only if the employee is terminated without cause post-acquisition within 12–24 months (double-trigger).

These are negotiable, especially for senior employees, executives, and founders. If you are in a position to negotiate your offer letter or employment agreement, including accelerated vesting language can be extremely valuable. A 25% acceleration on a $1 million unvested grant saves $250,000 in forfeited equity.

Exercising options after termination

Once vested, your options can be exercised even after you leave — but only during the post-termination window, typically 90 days.

The mechanics are straightforward:

• You pay the strike price (usually per share, in cash).
• You receive shares.
• You own those shares outright; they do not vest further.

The decision to exercise depends on several factors:

If shares are in-the-money (stock price > strike price): Exercise is attractive if you believe the stock will appreciate further. But it requires cash upfront and creates a concentrated position.

Example: You have 1,000 vested options at a $5 strike. The current stock price is $30. Exercising costs you $5,000 and gives you 1,000 shares worth $30,000. If you believe the stock will reach $50, exercising locks in the $5,000 cost basis.

If shares are out-of-the-money (stock price < strike price): Exercising is economically irrational. You pay $5,000 to receive shares worth less.

Tax considerations: For non-qualified options (NSOs), exercising triggers ordinary income tax on the spread (stock price minus strike price). For incentive stock options (ISOs), exercising does not trigger income tax immediately, but you face alternative minimum tax (AMT) exposure if the spread is large.

The 90-day window creates urgency. Many employees must decide whether to exercise with incomplete information about the company’s future. Some companies extend the window (via amendment of the grant) for departing employees, especially if the departure is involuntary.

RSU termination rules

RSUs follow different rules than options, and the distinction matters.

Unvested RSUs: Forfeited on termination, period. Unlike options, there is no exercise window. The shares simply cease to be granted. If you have 100 RSUs unvested and you leave, those 100 RSUs are deleted from your account.

Vested RSUs: Usually settled automatically — either as shares deposited into a brokerage account or as cash (if the company has an equivalent cash settlement program). Some companies allow you to elect settlement timing, but many settle immediately upon termination.

Once settled, vested RSUs are yours. There is no post-termination window constraint like options have. But vesting stops on your termination date. If you were expecting an RSU tranche to vest in two weeks, and you leave today, that tranche forfeits.

Double-trigger RSUs (common in acquisition packages) have special post-termination rules: if the company is acquired after you leave but before your vesting period ends, your unvested RSUs may still trigger at the acquisition price, depending on the agreement language. This is rarer and usually applies only to key employees retained through closing.

ESPP shares at termination

Many companies offer employee stock purchase plans (ESPP) — plans where employees can contribute payroll deductions to buy stock at a discount (usually 10% to 15% below fair market value).

At termination:

• Accumulated contributions: Returned to you in cash (no tax event).
• Shares already purchased: You own them outright and can sell whenever you choose.
• Pending purchases: Your accumulated funds are typically returned if you leave before the next purchase date.

ESPP is generally favorable because you own shares immediately, with no vesting, and the discount is a guaranteed profit. Termination does not affect shares already purchased; they remain yours.

Tax consequences of post-termination exercise

Exercising vested options after you leave a company has tax consequences that depend on the option type and your holding period.

NSOs post-termination exercise: The ordinary income tax event occurs at exercise, on the spread between stock price and strike price. After you sell, any gain or loss beyond that spread is capital gain or loss.

ISOs post-termination exercise: You do not owe income tax on exercise itself, but you face alternative minimum tax (AMT) if the spread is large. If you sell more than one year after exercise, any gain beyond the original spread is long-term capital gain (favorable). If you sell within one year of exercise or within two years of grant, you lose ISO treatment and the spread becomes ordinary income (unfavorable).

Post-termination exercise is often less favorable than during employment because you lose the ability to take advantage of specific tax strategies (e.g., same-day sales for NSOs, careful timing for ISO qualification).

Negotiating better terms

Post-termination rules are almost always negotiable upfront. Before accepting an offer or signing an employment agreement, consider asking for:

• Extended exercise window: 12 months instead of 90 days (especially valuable if leaving to start a new venture or manage personal finances).
• Accelerated vesting: 25% to 50% of unvested equity vests immediately upon involuntary termination without cause.
• Change-of-control acceleration: Clear language on what happens to your equity if the company is acquired.
• Continued vesting: For founders or senior employees, sometimes equity can continue to vest for a period (e.g., 12 months) after departure if termination is involuntary.

Large tech companies often have standard policies that resist negotiation. Early-stage and mid-market companies usually have more flexibility. The time to negotiate is before you join, not after you have decided to leave.

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