Today, we are continuing our series on Employee Equity Explained by discussing stock options specifically.
Stock options are contracts that allow an employee to buy shares (this is called “exercising” the option) at a fixed price. Options are different than receiving stock because an option is exactly as it sounds; it’s an option to buy stock upon certain conditions being met, such as vesting (discussed below).
There are two standard types of stock options: Incentive Stock Options (“ISOs”) and Nonstatutory Stock Options (“NSOs”).
ISOs provide the recipient with certain tax benefits but they can only be provided to employees of the company, not independent contractors or non-employee board members. Additionally, only $100,000 in ISOs can be exercisable in any given year. NSOs on...