Shares and stock options as part of compensation package

Start-ups can rarely attract talent with high salaries so giving out shares and stock options as part of the compensation is vital. However, the taxation regulations for this are extremely complicated, and more importantly, they do not seem to accept that most start-ups fail and the shares and stock options are worth nothing.

Even if there is a successful funding round with a valuation, that does not mean that the shares/options are really worth that amount as there is no market to sell them and the likelihood of their value ending up at zero is still high.

These are facts that should be taken into consideration in taxation. Ideally, taxes should be payable only when the shares are sold, or at least when there is a reasonable certainty that the company will survive.

In the set-up where shares/options are taxed as income, it should be at least possible to claim the paid taxes back if the company ends up going bankrupt. This is just common sense as the recipient has not benefited financially from these shares/options at all and they have still paid taxes for them.