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Stock appreciation rights are a type of incentive plan based on your stock's value. Employees receive a bonus in cash or equivalent number of shares based on how much the stock value increases over a set period of time - usually from the date of granting the right up until the right is exercised.
Rather than issuing stock options like you would in a corporation, in an LLC you hold membership interests. If you're the sole member of an LLC, you retain 100% equity. However, if you're part of a multiple-member LLC, equity is distributed among members based on the terms of your operating agreement.
Upon a sale of the stock, the recipient receives capital gain or loss treatment. Any dividends paid while the stock is unvested are taxed as compensation income subject to withholding. Dividends paid with respect to vested stock are taxed as dividends, and no tax withholding is required.
A stock appreciation right ("SAR") is generally defined as the right to receive the benefit of the increase or appreciation in the value of a company stock.
For purposes of financial disclosure, you may value a stock appreciation right based on the difference between the current market value and the grant price. This formula is: (current market value grant price) x number of shares = value.
LLC Options An LLC option is a contractual right held by the grantee to purchase a capital interest in the LLC at a fixed price in the future. Unlike corporations, LLCs cannot issue "incentive stock options." There is no final guidance from the IRS on how compensatory nonqualified options of an LLC will be treated.
Stock options are only for people This issue often arises when a consultant provides services to the company and asks to have their options titled in the name of their LLC. While it's usually fine to grant stock options to an individual consultant under the option plan, grants generally can't be made to an entity.
Most LLCs require 83(b) elections to preserve the favorable tax status of profits interests. As mentioned before, an 83(b) election gives recipients the ability to pay taxes on the total FMV of the award at the time of issuance.
Stock options are often given at a discounted price by the employer. With stock options, you assume the full value of the shares. With SARs, your reward is based on any increases in the value of the shares.
A stock appreciation right is a form of incentive or deferred compensation that ties part of your income to the performance of your company's stock. It gives you the right to the monetary equivalent of the appreciation in the value of a specified number of shares over a specified period of time.