Mostly this happened to people that got bad advice (I really hope all of the entrepreneurs reading this site are smarter now).
For most, the issue was exercising their options. This is a tax event -- and the tax is owed on the difference in your strike price and the current price of the stock. If you find yourself in this situation -- immediately sell enough stock to cover the tax.
If you are given stock -- that is the tax event. You need to have enough cash to cover taxes on stock given to you -- if the stock is illiquid, and this is a bonus or something, then you should ask for part of the bonus to be in cash (to cover tax). If the stock is liquid, immediately sell enough to cover tax.
If you are a founder, and your stock just goes up in price, that is not a tax event.
Being given at-the-money options is not a tax event. You only owe <s>stock</s> tax once you exercise.
IANAA (not an accountant)
EDIT: replace "stock" with "tax" in the second to last paragraph
For most, the issue was exercising their options. This is a tax event -- and the tax is owed on the difference in your strike price and the current price of the stock. If you find yourself in this situation -- immediately sell enough stock to cover the tax.
If you are given stock -- that is the tax event. You need to have enough cash to cover taxes on stock given to you -- if the stock is illiquid, and this is a bonus or something, then you should ask for part of the bonus to be in cash (to cover tax). If the stock is liquid, immediately sell enough to cover tax.
If you are a founder, and your stock just goes up in price, that is not a tax event.
Being given at-the-money options is not a tax event. You only owe <s>stock</s> tax once you exercise.
IANAA (not an accountant)
EDIT: replace "stock" with "tax" in the second to last paragraph