As more and more individuals are launching new businesses, entrepreneurs are increasingly using stock options as a way to allow individuals to become investors or to compensate individuals providing services to the fledgling business. However, a Costa Mesa business attorney may explain that new business owners should weigh these considerations when issuing stock options:
Type of Options
A Costa Mesa business attorney can explain that there are different types of options, such as Incentive Stock Options and Non-Statutory Options. The first option usually provides a more favorable tax treatment since tax is only imputed at capital gains rates. In contrast, a Non-Statutory Option is taxed as ordinary income for the difference between the exercise price and fair market value and then once more as a capital gain.
Consider the amount of time that you want to issue the option for.
Amount of Shares
The number of shares may be a numeric number or it may be expressed as an overall percentage. Take into consideration that if the amount of shares is expressed as a percentage, the shares will be diluted if more shares are issued.
Timing of Vesting
Stock options may vest at different times. For example, vesting may occur at the time of employment. A portion may vest at a later time, such as after a year of continued employment. Stock options can also be conditioned on other objective criteria, such as business growth, profit or number of customers.
For more information on stock options, contact a Costa Mesa business attorney from Daily Aljian LLP.