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Qualified stock options, also known as incentive stock options, can only be granted to employees. Non-qualified stock options can be granted to employees, directors, contractors and others. This gives you greater flexibility to recognize the contributions of non-employees.
Non-qualified stock options require payment of income tax of the grant price minus the price of the exercised option. NSOs might be provided as an alternative form of compensation. Prices are often similar to the market value of the shares. What Is a Non-Qualified Stock Option (NSO), and How Is It ... Investopedia ? ... ? Investor Taxes Investopedia ? ... ? Investor Taxes
The exercise price must not be less than the fair market value (FMV) of the stock on the date of grant (but see No. 6 below). The term of the options must not exceed 10 years from the date of grant (but see No. 6 below).
Section 422(b)(2) defines an ISO as an option granted to an individual for any reason connected with his employment by a corporation, if granted by the employer corporation or its parent or subsidiary corporation, to purchase stock of any of such corporations, but only if, among other requirements, such option is ... options granted within 10 years of plan amendment satisfy iso rules. taxnotes.com ? federal ? irs-private-rulings taxnotes.com ? federal ? irs-private-rulings
The 10-year deadline is required by the Internal Revenue Code. It's actually a five-year deadline to grant an incentive stock option to someone who's a 10% stockholder. For non-qualified stock options, 10 years is not required by the Internal Revenue Code, but it's almost universally the maximum term that you see. Expiring Stock Options: What Can the Employer Do? lowenstein.com ? podcasts-listing ? expiring... lowenstein.com ? podcasts-listing ? expiring...
10 years Your stock option grant should also specify its expiration date. In general, ISOs expire 10 years from the date you're granted them. However, your option grant can also expire after you leave the company?you may only have a short window of time to exercise your options (buy the shares) after you leave. Stock Options Explained: What You Need to Know - Carta carta.com ? blog ? equity-101-stock-option-basics carta.com ? blog ? equity-101-stock-option-basics