Can I Sell Stock After Leaving a Company?

Employee equity compensation can be a significant part of an overall compensation package, offering a stake in the company’s success. When an individual departs from an employer, questions often arise regarding the ability to sell company stock accumulated during their tenure.

Understanding Your Equity Compensation Post-Employment

Employee equity compensation grants individuals a partial ownership stake in their company, aligning their interests with the business’s performance. This non-cash compensation typically includes various forms, each with distinct characteristics that affect eligibility for sale after leaving a job.

Restricted Stock Units (RSUs) grant employees the right to receive company stock upon meeting vesting conditions, such as employment length or performance. Once vested, shares are delivered, and their value is considered ordinary income. Unvested units are typically forfeited upon leaving the company.

Restricted Stock Awards are similar to RSUs, involving actual shares of stock granted to an employee, subject to vesting requirements. Once vested, these shares are fully owned by the employee, and their fair market value at the time of vesting is generally recognized as ordinary income.

Non-Qualified Stock Options (NSOs) grant the right to purchase company shares at a set strike price. Unlike RSUs, NSOs require employees to “exercise” the option by paying the strike price to acquire shares. Only vested options can be exercised. Upon leaving, employees typically have a limited post-termination exercise period, often around 90 days, to exercise vested NSOs before they expire.

Incentive Stock Options (ISOs) offer potential tax advantages if specific Internal Revenue Service (IRS) rules are met. Like NSOs, ISOs grant the right to purchase shares at a strike price and are subject to vesting. To maintain favorable tax treatment, ISOs generally must be exercised within 90 days of leaving. If exercised later, ISOs convert to NSOs for tax purposes, losing their special status.

Employee Stock Purchase Plans (ESPPs) allow employees to purchase company stock at a discount via payroll deductions. Plans have offering periods for deductions and purchase periods for stock acquisition. Employees gain full ownership of ESPP shares immediately upon purchase, provided holding requirements are met. Upon leaving, accumulated funds not yet used for stock purchase can typically be withdrawn.

To sell equity after departure, it must be fully vested and, for options, exercised and converted into shares. Unvested equity is generally forfeited, and unexercised options expire if not acted upon within the specified post-termination period.

Executing the Sale of Your Company Stock

Once your company stock has vested and, if applicable, been exercised, it becomes eligible for sale. The actual process of selling these shares involves several procedural steps, generally managed through a brokerage account or a company-designated plan administrator.

Access the brokerage account holding your company stock. Many companies use major firms to administer equity plans. Log in using credentials from the firm or your former employer. If shares were held by a plan administrator, you may need to initiate a transfer to a personal brokerage account.

After logging in, navigate to the trading section to place a sell order. You can choose between a market order, which sells immediately at the current price, or a limit order, which specifies a minimum selling price. A limit order helps ensure a desired price but risks non-execution if the stock doesn’t reach it.

Once your sell order is placed and executed, the trade will typically settle within two business days, often referred to as T+2. You can then choose to withdraw these funds or reinvest them.

Should you encounter any difficulties or have questions about the selling process, contacting your former company’s equity plan administrator or the designated brokerage firm is recommended. They can provide specific guidance tailored to your holdings and the plan’s rules.

Tax Considerations for Stock Sales

Selling company stock acquired through employment compensation carries various tax implications that can significantly affect the net proceeds received. Understanding how the cost basis is determined and the distinction between different types of income and gains is essential for proper tax planning. The tax treatment varies depending on the type of equity compensation received.

For Restricted Stock Units (RSUs) and Restricted Stock Awards, the cost basis is typically the fair market value of the shares on the date they vested. When these shares are sold, the difference between the sale price and this cost basis is considered a capital gain or loss. If the shares were held for one year or less after vesting, any gain is classified as a short-term capital gain, taxed at ordinary income rates. If held for more than one year, the gain is a long-term capital gain, subject to potentially lower capital gains tax rates.

For Non-Qualified Stock Options (NSOs), the cost basis for the shares acquired is generally the exercise price paid plus any amount recognized as ordinary income at the time of exercise. The difference between the fair market value at exercise and the strike price is taxed as ordinary income when you exercise NSOs. When you later sell the shares, any appreciation beyond this adjusted cost basis is treated as a capital gain or loss. The short-term or long-term capital gain classification depends on how long you held the shares after exercising the options.

Incentive Stock Options (ISOs) have unique tax considerations. When ISOs are exercised, there is generally no regular income tax liability at that time. However, the difference between the exercise price and the fair market value of the shares at exercise is considered an adjustment for Alternative Minimum Tax (AMT) purposes. This can potentially trigger AMT, which is a separate tax system designed to ensure certain higher-income taxpayers pay a minimum amount of tax. When you sell ISO shares, the gain is typically taxed as a long-term capital gain if certain holding period requirements are met: holding the shares for more than two years from the grant date and more than one year from the exercise date.

Employee Stock Purchase Plans (ESPPs) also have specific tax rules. The discount received on the purchase of ESPP shares is generally taxed as ordinary income. When the shares are sold, any additional gain beyond the discounted purchase price is treated as a capital gain or loss. The classification as short-term or long-term capital gain depends on how long the shares were held after purchase.

For a “qualifying disposition” (meeting specific holding periods, generally two years from the offering date and one year from the purchase date), the discount portion is taxed as ordinary income, and any further appreciation is taxed as a long-term capital gain. If these holding periods are not met, it’s a “disqualifying disposition,” and a larger portion of the gain, including the discount and some appreciation, may be taxed as ordinary income.

Regardless of the equity type, your brokerage firm will issue Form 1099-B, which reports the proceeds from your stock sales to both you and the IRS. This form is crucial for accurately reporting your capital gains and losses on Schedule D of your tax return. Maintaining detailed records of grant dates, vesting dates, exercise prices, fair market values at vesting/exercise, and sale proceeds is important for correctly determining your cost basis and calculating your tax liability. Consulting with a tax professional can help ensure compliance and optimize your tax strategy given the complexities of equity compensation.

Common Restrictions on Selling Former Company Stock

Even if your company stock has vested and is otherwise eligible for sale, certain restrictions can delay or prohibit the transaction. These limitations are often in place to comply with securities regulations, protect proprietary company information, or manage market stability.

One common restriction is company-imposed blackout periods, which typically prevent employees and former employees from trading company stock during sensitive times. These periods often occur before earnings announcements or other major corporate news to prevent insider trading. The duration and timing of blackout periods are determined by the company and can vary.

Insider trading rules are a significant legal constraint, prohibiting individuals who possess material non-public information about a company from trading its securities. Even after leaving a company, if you are privy to such information, you are legally restricted from trading until that information becomes public. Violations of insider trading laws can result in severe penalties, including fines and imprisonment.

Lock-up periods are another type of restriction, frequently seen after a company’s Initial Public Offering (IPO). These contractual agreements prevent major shareholders, including former employees who received equity, from selling their shares for a specified period, often ranging from 90 to 180 days post-IPO. The purpose of a lock-up is to prevent a flood of shares hitting the market immediately after the IPO, which could depress the stock price.

Furthermore, companies may have specific internal policies or agreements that impose restrictions on selling shares after an employee’s departure. These policies might be outlined in the original equity grant agreements or employment contracts. Some agreements may include provisions related to working for competitors or other post-employment conduct that could affect the ability to sell shares. It is advisable to review all relevant plan documents and consult with the former company’s HR or legal department if there is any uncertainty regarding potential restrictions.