You open your inbox and there it is: “Company Tender Offer—Action Required.” It sounds official (because it is), but also a little opaque. You’ve worked for years for those options or RSUs. Is this your moment to take cash off the table—or a trade you’ll regret if the stock surges later? This guide translates the jargon and provides a practical, bias-aware approach to decision-making, eliminating the need to predict market trends.
What a Tender Offer Is (and Isn’t)
An employee tender offer is a company-organized window for employees and early stakeholders to sell a defined number of shares at a single price, over a fixed timeline. It’s different from ad-hoc secondaries: tenders are centralized, come with a portal and standardized documents, and are typically easier for rank-and-file employees to use. By contrast, open-market negotiations with a buyer can be flexible but carry more paperwork, approval steps, and risk that a deal falls through.
New to private-share liquidity? Spend five minutes browsing a neutral private company stock marketplace to see how buyers evaluate common-stock value, how 409A valuations anchor expectations, and why volume caps often force proration. That context makes the offer packet feel less intimidating.
There’s also a regulatory spine behind every offer. The SEC requires minimum timelines, withdrawal rights if material terms change, and equal treatment on price. The plain-English definition and investor guidance are here: SEC overview of tender offers. One rule you’ll hear repeatedly: the offer must remain open at least 20 business days—enough time to compare scenarios, ask questions, and, if needed, change your election before it closes.
How an Employee Tender Works (Step by Step)
1) Terms are set. Finance, Legal, and the board approve a per-share price, which security classes are eligible (common, certain RSU releases, exercised options), a cap (e.g., up to $50M or up to 10% of fully diluted shares), and key dates.
2) The window opens. You receive a portal link or packet. It outlines eligibility rules, pricing rationale (often tied to the latest 409A FMV), tax handling, fees, and the closing date, plus a withdrawal deadline.
3) You elect a number. You can usually tender “up to” a quantity. You’re not required to go all-in. Many employees submit a little more than they truly want to sell, anticipating proration if the offer is oversubscribed.
4) Proration mechanics. If the buyer caps purchases at 1,000,000 shares and employees collectively tender 2,000,000, each participant sells roughly half of what they submitted. Some offers prioritize “odd-lot” holders with very small positions—check for that clause.
5) Withdrawal rights and extensions. If the company raises prices or otherwise changes terms materially, the window is typically extended, and you can withdraw or amend your election.
6) Close, transfer, and settlement. After the window closes, transfer agents and escrow complete the sale, and funds arrive in several business days. Expect withholding on RSUs and standard reporting for option-related sales; details depend on your award type.
Quick gut-check: if you’re unsure how sophisticated to be with elections or tax modeling, it’s fine to keep it simple the first time and learn by doing. You can always participate again in a later window. Document everything and take screenshots of elections for records and later questions, too.
Price, Taxes, and Real-World Scenarios
How price gets set. Private tender prices commonly reference the most recent 409A fair market value for common stock, adjusted up or down based on round timing, growth metrics, and buyer appetite. If the company recently raised a preferred round, the employee tender price may triangulate to a common-equivalent value, acknowledging that common sits below preferred in the stack.
Tax basics you can’t ignore.
- NSOs (non-qualified stock options): When you exercise, the bargain element (FMV at exercise minus strike) is ordinary income. Later gains or losses from that new basis are capital.
- ISOs (incentive stock options): Exercise doesn’t trigger regular income tax, but the bargain element is a preference item for AMT. Meet the holding periods (two years from the grant and one year from exercise), and a later sale can qualify for long-term capital gains. The IRS summarizes the distinctions in Topic No. 427 on stock options.
Scenario A: RSUs worth $80,000 at the employee tender price. Selling yields cash minus employer withholding for taxes; holding keeps full upside and downside. If your emergency fund is thin or high-APR debt is lurking, liquidity now can be the better risk decision.
Scenario B: NSOs you exercised months ago at a $1 strike; the employee tender price is $9. Your basis is $10,000, proceeds are $90,000, and you owe capital gains on $80,000 (short or long term depends on holding period). If you had exercised into the tender, you would also owe ordinary income on the bargain element at exercise.
Scenario C: ISOs exercised last year at $2 FMV; today’s tender is $8. If you satisfy the ISO holding periods, gains can be long-term, and you may recover some AMT via credit in future years. This is a classic case where a 30-minute CPA session pays for itself.
What about mini-tenders? In public markets, small-percentage “mini-tenders” have a history of confusing investors with below-market offers. Private, employee tenders aren’t the same, but the cautionary lesson applies: read the fine print, compare price references, and beware of tactics that pressure you to act without clarity.
A Decision Framework You Can Reuse
1) Start with your life, not the stock chart. Do you have near-term cash needs—housing, childcare, caregiving, debt payoff, or simply sleep-at-night reserves? If so, selling a defined slice now reduces fragility.
2) Check concentration risk. If company equity is more than 20–30% of your net worth, you’re running hot. Many employees make a first-tender plan to sell 20–50%, locking in tangible progress while keeping meaningful upside.
3) Map the next 12–24 months for the business. Credible product milestones, renewed customer momentum, or a realistic profitability path can justify holding more. Heavy liquidation preferences, a stalled pipeline, or expensive debt argue for prioritizing liquidity.
4) Evaluate terms like a buyer.
- Price sanity: Compare to the latest 409A or round; large unexplained discounts are a flag.
- Cap and proration: If you must raise $25,000, submit more shares than that target to offset potential proration.
- Who’s buying: A Company buyback or board-aligned fund tends to lower execution risk.
- Fees and withholding: Verify transfer fees, RSU withholding rates, and option-sale reporting.
5) Choose a base plan and automate the follow-through.
- Default split: Sell enough to hit named goals (kill a 22% APR card, fund six months of expenses), then hold the rest intentionally.
- Advanced plan: Stage ISO exercises early in the year to manage AMT, pursue holding periods for long-term treatment, and tender only the slice that doesn’t fit your long-run thesis.
To calibrate complexity against your comfort level, skim Due’s perspective on levels of investor expertise. It’s a quick lens for deciding whether you should keep decisions simple or model taxes and scenarios more deeply.
If You Sell: Put the Cash to Work
Liquidity is only as good as the plan that follows it. A straightforward reallocation map:
- First dollars: Top up the emergency fund and pay off any high-interest-rate debts.
- Next dollars (5–10 years): Broaden exposure with low-cost index funds. If income is part of the goal, layer a sensible dividend sleeve—avoid stretching for yield. Due’s primer on how to build a dividend portfolio explains the trade-offs.
- Small risk barbell: If you genuinely believe in your company or another startup, cap a small slice for higher-risk bets—decide the cap in advance so it doesn’t expand with emotion.
Also, sanity-check return expectations if you’re tempted by “double-fast” ideas, weigh risk and timelines using Due’s balanced guide on ways to double your money through investing.
Red Flags vs. Good Problems
Be cautious if: price sits far below a fresh 409A without explanation; the buyer is opaque; terms make withdrawal awkward; the process feels rushed or unusually complex for no reason. The equal-treatment and timeline standards that protect you—including the 20-business-day minimum in Rule 14E—exist to slow things down for considered decisions.
Smile (then plan) if: the offer is oversubscribed and you only get a partial fill. Yes, proration is frustrating, but it signals demand. If your goal was $25,000 of liquidity, submit proportionally more shares so your post-proration proceeds land near the target. If the price improves mid-offer, confirm whether you need to re-elect to capture the higher number.
A Short Checklist You Can Copy
- I wrote down why I’m selling (debt, runway, down payment, peace of mind).
- My employer equity falls below a concentration cap I set (for example, <25% of net worth).
- Price vs. 409A/last round makes sense; buyer and proration terms are acceptable.
- I ran a quick ISO/NSO/RSU tax projection (including AMT where relevant).
- I chose an intentional split (sell X%, hold Y%) and a redeployment plan for proceeds.
- I noted the close date, the withdrawal deadline, and added buffer days for settlement.
Quick FAQs
Can I change my mind after electing to sell? Yes—until the withdrawal deadline, you can reduce, increase, or cancel, especially if the offer is extended or the price changes.
Do I have to notify my manager? No. Tenders are handled by a transfer agent or portal; your decision is personal. You may need to complete KYC/AML checks and tax forms.
What if I’m on parental leave or outside the country? You’re typically still eligible if your awards are eligible; logistics (signatures, identity verification, bank details) can take longer. Start early, double-check local tax rules, and confirm wire instructions to avoid settlement delays.
Insider status or blackout rules? Company tenders often include clearance; still follow insider policies and avoid sharing nonpublic information. Always.
Wrap-Up
A tender offer consolidates numerous decisions into a single calendar window, but you don’t need a crystal ball to make a smart call. Anchor on your goals, respect taxes and concentration risk, and default to a split if you’re torn—secure tangible progress now, keep enough shares to cheer for later, and let diversification do its quiet work.
Featured Image Credit: Photo by Fauxels; Pexels
