Two types of stock options for employees exist—incentive stock
options (ISOs), or statutory stock options, and nonstatutory stock
options, also known as nonqualified stock options (NSOs). While ISOs
are, for the most part, more favorable to an employee, NSOs have their
advantages, too.
The main difference between the incentive stock option and the
nonstatutory stock option is that for one reason or another, that
particular stock option does not meet all the necessary requirements to
legally qualify as an incentive stock option. Most, if not all,
nonstatutory stock options do not have a fair market value at the time
of purchase and therefore are taxed at the time of employee purchase;
however, if the value of the stock purchase is established (which most
are not), it will be taxed to the employee. Also, it should be noted
that for an employee holding an NSO with an already determined fair
market value, that nonstatutory stock option is not taxable upon its
receipt.
Another important difference between the two stock options is that Code
Section 83 governs the taxing of the NSO. NSOs are also fully
transferable. Nonstatutory stock options also do not have to meet any
qualification rules, and a company can customize the option to meet the
exact needs of its employees. They are especially beneficial to
contractors because they can be awarded to them and any other company
worker that is not directly employed by the company.
Stock shares deemed to be nonstatutory stock options are prearranged so
employees that wish to purchase those stock options can do so at a
preset price. This way employees can feel as if they are a part of the
growth of the company in which they work for.
As an employee, it is important to keep in mind that employers that use
these type of stock options are aiming to reward employees for their
hard work and loyalty by seeking the same benefits for them that
qualified stock options supply.
Proven Investment Advice
Get Dow Theory Forecasts - the acclaimed investing newsletter on buying, selling and holding common stocks. Build and preserve your wealth. Subscribe now and get three free reports.
Other investing articles of
interest
Istanbul Stock
Exchange The Istanbul Stock Exchange (ISE) is the only forum for
publicly-traded securities in Turkey and was established in 1986.
Exchange members include development banks, commercial banks and
brokerage houses and facilitate the trade of bonds and bills,
privat (Continue Reading)
Predicting Stock Market
Volatility The person who comes up with a great
reliable way
to predict stock market volatility will be the person with the power to
rule
the world. Until someone comes up with such an instrument or
methodology,
though, there are a few simple things you can follow, (Continue Reading)
Norwegian Stock Exchange The Norwegian Stock Exchange actually
called the
Oslo Bors stock exchange is a well organized regulated market that
trades in
numerous varieties of securities. The Norwegian Stock Exchange is part
of the
Norwegian securities market that consists of Oslo B (Continue Reading)
“Four Best places to Invest
in Real Estate” Just in case you’re wondering if the bottom has fallen off the
real estate boom, let the National Association of Realtors official
statement that it expects 2005 to be another record-setting year in the
U.S., assure you, it hasn’t. At least no (Continue Reading)
Prudential Stock Prudential is one of those names that’s always been there. The
origins of the company go back into antiquity with mergers and
acquisitions cropping up regularly over many decades to the extent that
the true origins of the Prudential brand have been (Continue Reading)
