September 2025 - SeedSafe Financial

Just Promoted? Here’s Why You May Face New Limits on Selling Your Stock

If you’ve stepped into a Director or C-suite role at your tech company, you might suddenly face new restrictions on when and how you can sell your equity. These rules aren’t just bureaucratic red tape – they exist to prevent insider trading and uphold market integrity. A 10b5-1 plan may help you in this case.

Understanding trading restrictions and how a Rule 10b5‑1 plan works can help you. Understanding these restrictions can help you discuss options with your legal, tax, and financial advisors to stay compliant and create a thoughtful strategy for managing your equity.

Let’s unpack it together!

What are trading restrictions for tech companies?

Trading restrictions occur to prevent insider trading in public companies. When a tech startup IPOs, there may be a few types of trading restrictions at the start:

Lock-up Period: This generally occurs during the first 6 months of the IPO trading on the stock market. This is meant to prevent employees from selling / ‘dumping’ their shares on the stock market and destabilizing the price. Many banks who help tech startups IPO will make this a stipulation since they assist with supporting a pricing window during this time.

Blackout Period: This restriction applies to employees with access to material, nonpublic information. Generally, this covers the C-Suite, Directors in charge of major P&L items, and many finance team members. The blackout period generally exists some time frame between quarterly earnings calls. This way, the thought is that the quarterly earnings call will allow the public to have the same information as a potential insider. Some key employees may be further restricted.

Technically, the SEC requires employees with >10% ownership in the company to follow these restrictions. However, it is up to the tech company to decide who is a key employee beyond these individuals. You may learn your promotion comes with a few more restrictions!

What is a Rule 10b5-1 Plan and How Does It Work?

A Rule 10b5-1 plan is a concept the SEC came up with to help employees comply with the trading restrictions they impose. The theory is that if an ‘insider’ or key employee states their intentions around stock sales in advance, then the risk of insider trading goes down. This can, can prevent the accusations of insider trading and level the playing field.

The plan will state the types of stock subject to the plan – options, RSUs, or ESPP shares. Then it will ask for other details:

Grant ID
Date Shares Acquired/Vested
Sale Period
Authorized Number of Owned Shares for Sale
Limit Price or Market Price

Then, these details go to the Custodian and Company to approve.

Note: If you do not follow your plan, the protections of the Rule 10b5-1 Plan may no longer apply for ‘insider’ trading.

What Are the Benefits and Risks of a 10b5-1 Plan?

Pros and cons of a 10b5-1 plan may be up for interpretation by each individual 🙂 So let’s talk more about the features of a 10b5-1 plan:

When properly established and followed, a Rule 10b5-1 plan may offer an affirmative defense against insider trading allegations. However, this depends on individual circumstances and adherence to plan requirements
It can allow you to trade throughout the year, instead of waiting for black out periods to end
You are able to potentially diversify out of your company stock in a more consistent manner
It can take the emotions out of the decision to sell. You won’t need to remember how much to sell or worry about the stock price changing during the window you can sell
You will be subject to a cooling off period before, or during termination, of your 10b5–1 plan
If you change your mind and wish to modify or terminate your 10b5-1 plan, you may be subject to more scrutiny and potential allegations

What Is the Cooling-Off Period for a Rule 10b5-1 Plan?

The cooling off period is usually between 30 to 90 days before the 10b5-1 plan takes effect. The cooling off period does not allow you to sell any shares during this time.

The cooling off period also applies if you decide to modify or terminate your 10b5-1 plan. It is important to work with your company to understand your company’s insider-trading policy.

What Should I Ask My Company Before Starting a 10b5-1 Plan?

Key questions you should ask before implementing a 10b5-1 plan include:

Who is allowed to put a 10b5-1 plan in place?
How long does the 10b5-1 plan need to apply? 1 year?
What kind of sales are prohibited as part of the plan?
Am I allowed to modify or terminate the plan during open trading windows?
If I do modify or terminate the plan, what is the waiting/cooling off period before I can trade shares again?
Will my Rule 10b5-1 plan be publicly disclosed?
Once I establish my 10b5-1 plan, can I trade additional shares outside of the plan?

Summary: How a Rule 10b5-1 Plan Helps Insiders Sell Stock Legally

Trading restrictions apply to insiders after IPOs and around earnings
A Rule 10b5-1 plan lets you pre-schedule trades legally
Plans must include key details like timing, share amounts, and prices
You must follow a cooling-off period before trades can begin
Modifications require caution – breaking the plan may void protection

Did You Know Part of Your Startup Exit Could Be Tax-Free?

If you’re a founder, early employee, or investor in a high-growth startup, a little-known tax benefit could help you exclude up to $10 million (or more with the OBBBA changes) of capital gains from federal taxes. It’s called the Qualified Small Business Stock (QSBS) exclusion, and for those who qualify, it can mean massive tax savings upon exit.

Let’s break it down – clearly, calmly, and in plain English.

What Is QSBS? (Qualified Small Business Stock)

QSBS is a provision in Section 1202 of the tax code that allows shareholders of certain small businesses to exclude capital gains from federal tax when they sell their stock – if they meet five specific requirements.

Under current rules, you may be able to exclude 100% of your gain, up to $10 million or 10x your original investment (whichever is greater).

Who Qualifies for the QSBS Exemption?

To be eligible for QSBS treatment, you must meet five criteria:

The stock must have been directly acquired via an original issuance from a U.S. C corporation (Sec. 1202(c)(1));
Both before and immediately after stock issuance, the C corporation’s tax basis in gross assets did not exceed $50 million (Sec. 1202(d)(1));
The C corporation and shareholders must consent to supply documentation regarding QSBS (Sec. 1202(d)(1)(C));
The C corporation conducts certain qualified active trades or businesses (Sec. 1202(e)); and
The stock must have been held for 5 or more years (Sec. 1202(b)(2)).

You can find a great cheat sheet put together by Cooley HERE. Please note this is a third-party resource and SeedSafe Financial LLC is not affiliated with Cooley or responsible for the content on their site.

What Changed with the New Law?

The Opportunity to Build Back Better Act (OBBBA) made key changes to QSBS for stock acquired on or after July 5, 2025:

Tiered Holding Period:
- 3 years = 50% gain exclusion
- 4 years = 75% exclusion
- 5 years = 100% exclusion
Cap Increase: The $10M limit rises to $15M, adjusted for inflation starting in 2027
Gross Asset Test Increase: From $50M to $75M, also inflation-adjusted

**Important: If you acquired your stock before July 5, 2025, the original rules still apply.

Understanding your specific exemption requirements is important.

QSBS and Industry Eligibility

Many types of early-stage tech startups qualify under the industry requirement. However, if you’re in FinTech, healthcare, or another excluded industry, the analysis is more nuanced. It’s crucial to confirm with your company and tax advisor whether your stock qualifies.

Federal QSBS Exclusion: By Acquisition Date

Acquisition Period	Percent Exclusion (Regular Tax)	AMT Add-Back
Before Feb 18, 2009	50%	7%
Feb 18, 2009 – Sept 27, 2010	75%	7%
Sept 28, 2010 and later	100%	0%

Note: QSBS gains are taxed at a special 28% rate if not fully excluded. Higher earners should also factor in the 3.8% Net Investment Income Tax (NIIT).

Most sales for higher wage earners will trigger AMT. For AMT purposes, 7% of the excluded gain is added back to taxable income for the computation of stock sold before Sept 28, 2010.

Hopefully, at this point, any stock from pre-2010 has either exited or the company has dissolved so you can take a capital loss on the investment.

QSBS Example: How It Might Work in Practice

Scenario:

You and your spouse earn ~$500,000/year
You sell startup stock acquired in Jan 2019
Gain = $2.5M on $500K basis
You live in California

If QSBS Applies:

$2.5M gain excluded from federal tax
California tax due: ~$307,500
Effective tax rate: ~12.3%

If QSBS Does Not Apply:

Federal tax due: ~$595,000
California tax due: ~$307,500
Effective tax rate: ~36.1%

The difference? Nearly $600,000 in tax savings.

Disclaimer: This example is hypothetical and provided for illustrative purposes only. Your circumstances and results will vary.

What Documentation Do You Need to Claim QSBS?

To successfully claim QSBS treatment and avoid trouble during an audit, gather:

Stock purchase proof (certificates, checks, 83(b) election)
Company confirmation of C Corp status (e.g., IRS Form W-9)
Valuation docs at time of acquisition (especially for founders or early employees)

We strongly recommend working with a qualified tax advisor for the year of the sale.

Most states don’t follow the federal QSBS exclusion, so you may still owe state capital gains tax. California, for instance, does not conform – so plan accordingly.

Summary: QSBS Key Takeaways

You may qualify to exclude up to $10M or more in startup gains from federal taxes
You must meet five IRS criteria—original issuance, asset limit, active business, 5‑year holding, and documentation
New rules phase in for stock acquired July 5, 2025 or later
Most states do not follow federal QSBS rules—keep a reserve
Documentation is critical. Work with a professional to confirm eligibility and file correctly

Hire a tax preparer for the year in question. The simplified example above does not include a discussion of how each state may further tax your business gain. They will also make sure they have the documentation to support the QSBS exclusion on file in case of audit.

At SeedSafe financial, we believe financial clarity isn’t just about minimizing taxes – it’s about creating space to live well, align your wealth with what matters, and move forward with confidence.

If you’re navigating an exit—or want help understanding whether your shares may qualify for QSBS—we’re here to help you explore your options. We collaborate with your tax and legal professionals to support you with precision and care.

Month: September 2025

When Can You Sell Company Stock? Rule 10b5-1 Plans for Tech Professionals