Can a contractor get stock options?

Can a contractor get stock options?

Yes, companies can absolutely offer stock options to their contractors, but contractors need to consider how the vesting, taxation, financial planning, and investment management related to the stock options fit into their personal financial plan.

Can independent contractors get stock options?

Independent contractors or employees may be granted nonqualified/nonstatutory stock options (“NSOs”). Conversely, ISOs may only be granted to employees, not independent contractors.

Can contractors get RSU?

RSUs are allowed, by law, to be granted to employees and non-employees alike. This means they can be used for contractors and outside directors. From an individual income and tax perspective they are also similar to RSUs given to employees.

Can contractors receive equity?

A startup may offer equity compensation to independent contractors in one of two forms: a grant of restricted stock or a stock option. The SEC provides a safe harbor exemption under Rule 701 allowing non-reporting companies to issue equity in the company as compensation to employees, consultants, and advisors.

Who can receive incentive stock options?

Incentive stock options (ISOs), are a type of employee stock option that can be granted only to employees and confer a U.S. tax benefit. ISOs are also sometimes referred to as statutory stock options by the IRS. ISOs have a strike price, which is the price a holder must pay to purchase one share of the stock.

Can a contractor receive equity?

Under SEC Rule 701, private companies are allowed to give stock compensation to employees, consultants, independent contractors, and other “de facto” employees.

Why do employees want stock options?

Stock options essentially pay for themselves by motivating employees to increase the value of the business and thus generate their own financial reward. For example, an employee might not work hard to develop a business when there is no financial benefit to putting in more effort than it takes to simply keep his job.

How do stock options work for startups?

Types of startup stock options Stock options aren’t actual shares of stock—they’re the right to buy a set number of company shares at a fixed price, usually called a grant price, strike price, or exercise price. Because your purchase price stays the same, if the value of the stock goes up, you could make money on the difference.

What is the strike price of a stock option?

A stock option is a contract that gives you the right, but not obligation, to buy a stock at an agreed-upon price and date. The price at which you can purchase the stock is called the exercise price, or strike price. So if your employer grants you 100 options, you do not own 100 shares.

What happens if my employer gives me 100 stock options?

So if your employer grants you 100 options, you do not own 100 shares. Rather, you have the option to buy 100 shares at the aforementioned strike price. Doing so is called exercising your option. Most startups give employees Incentive Stock Options (ISOs), though some use Non-qualified Stock Options (NSOs).

How much does it cost to early exercise stock options?

The cost to early exercise varies drastically depending on the stage of the company. If you’re at a seed stage startup, your strike price could be $0.01. In this case, early exercising 50,000 options would cost you $500. At a Series A stage company, however, your strike price could be around $0.50.