The employee stock option prospectus explains the stock option plan to the employees. It addresses the employee's right to exercise the option of buying common stock in the company, along with explaining the obligations of the employee where taxes and capital gains are concerned.
Minnesota Employee Stock Option Prospectus
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US-TC0914
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FAQ
Exercise and/or Sell As Soon As Possible Many companies issue stock compensation with a schedule that's tied to a period of time you must remain with the company in order to receive the value of the plan benefit. Your first opportunity to take action is often whenever your stock options or grants are fully vested.
As far back as 1955, California courts considered with how to deal with incentive compensation, such as employee stock awards. Since then, courts consistently hold that agreements to provide stock options, restricted stock units (RSUs), or other ownership rights count as wages under the California Labor Code.
Further, with incentive stock options, the bargain element is treated as long-term capital gain rather than ordinary income when the stock is sold. For these reasons, employees generally prefer incentive stock options over an equivalent number of nonqualified options.
There is value in employee stock options when the market price is higher than the grant or strike price, but while you might make a lot of money off of them, you also might not. Options must be vested before you can exercise your right to buy them, meaning that a predetermined waiting period has passed.
A stock option provides an employee with the opportunity to purchase a set number of shares of company stock at a certain price within a certain period of time. The price is called the ?grant price? or ?strike price.? This price is usually based on a discounted price of the stock at the time of hire.
Types of stock options You can offer two kinds of stock options to employees: incentive stock options (ISOs) and non-qualified stock options (NSOs). The largest difference between these two categories of stock options is their tax qualification and eligibility requirements.
The majority of startups keep their employee equity pool to between 10-20% of the total. However, this depends on what stage of growth your company is in, how much you want to grow in the next 18 months, and a myriad of other factors.
There are two types of stock options: incentive stock options (ISOs) and non-qualified stock options (NSOs). These mainly differ by how and when they're taxed. ISOs could qualify for special tax treatment. With NSOs, you usually have to pay taxes both when you exercise and sell.