Listing private shares on public exchanges
An IPO does not itself pay shareholders cash. It creates a public market where shares can be bought and sold, converting illiquid private shares into tradeable public shares. Shareholders realize value later by selling into that market, subject to restrictions covered in more detail under employee equity at exit.
IPOs are a far less common exit route for venture-backed startups than acquisitions, since going public requires significant scale, regulatory compliance, and ongoing public reporting obligations that most startups never reach.
Trading restrictions following a public listing
Underwriters typically require existing shareholders, including founders and employees, to sign a lock-up agreement preventing them from selling shares for a set period after listing, commonly 90 to 180 days. This prevents a flood of selling that could crash the share price immediately after the IPO.
Employees who exercised options and hold shares before the IPO are usually still subject to the lock-up on those shares, just like founders and investors.
Options conversion and scheduled vesting post listing
- Vested options: can usually be exercised before or shortly after listing, subject to a cashless exercise facility some companies arrange with the underwriter
- Unvested options: continue vesting on their normal schedule, now against a publicly traded share price
- Option plan conversion: private company option plans are sometimes converted or replaced with a public company equity plan post-IPO
Tax liability timing during company public listings
Exercising options around an IPO can trigger a tax liability even before shares can be sold, since the lock-up period may prevent selling shares to cover that tax bill. Employees should plan for this liquidity gap well before exercising, ideally with advice from a tax professional in their country of residence.
What employees ask before a listing
- Can employees sell shares immediately after an IPO?
- No, in almost all cases a lock-up period of several months applies before employees or founders can sell.
- Is an IPO a common outcome for European startups?
- It is much less common than acquisition, since IPOs require significant scale and ongoing public company compliance.
- Does an IPO change how options are taxed?
- It does not usually change the tax rules themselves, but it changes timing, since exercising options creates a valuation reference point that can trigger tax before shares can be sold.
General information for founders, not legal or tax advice. Thresholds and rates change, so confirm the current position with an adviser in the relevant country before granting.