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Find the value of ownership review

Lesson in Course: Ambition reviews (beginner, 5min )

Part 2 of Use stock at work

Understanding an option grant

So we’ve decided to work at an exciting startup, and we’ve been granted stock options.

If the company is doing well, we can choose to exercise or convert our stock options into shares of the company at any time by paying the cost per share.

 

Incentive stock options

ISOs are popular among most US-based startups and can only be offered to employees. Companies prefer them because of the tax benefits for meeting specific criteria.

The first benefit is that, unlike NSOs, we can usually exercise our ISOs without paying any taxes. 

 

Non-qualified stock options

NSOs are usually only granted when ISOs are not available. Any employee, contractor, consultant, and board director can receive them. They aren't as preferable because they don't have tax benefits the way ISOs do.

 

The $100K rule for ISOs

The $100K limit is an effort to prevent abusing the tax benefits of ISOs, and from using them as a tax shelter, so the IRS treats anything over $100K worth of stock options that are exercisable in one calendar year as NSOs.

 

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