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Grant Description Taxes Payable Comment
NS0/NQO
Non-Statutory (Non-Qualified) Stock Option
Recipient received the right to purchase shares at a predetermined price (the “Exercise Price”) Grant: None
Vesting: None (assuming the Strike Price was at FMV)
Exercise: Spread between the Strike Price and FMV at time of exercise is ordinary income and a deductible expense to the company
Sale: Spread between FMV at exercise and sale price is capital gain (LT/ST depends on holding period post-exercise)
  • Exercise Price must be at least FMV
ISO
Incentive Stock Option
Recipient received the right to purchase shares at the Exercise Price
Operates like an NSO/NQO will more favorable tax treatment
Grant: None
Vesting: None (assuming the Strike Price was at FMV)
Exercise: None (but subject to AMT unless sold in year of exercise)
Sale:
  • if the sale occurs (i) more than two years after option granted; and (ii) and more than one year after option exercised, option holder taxed, as long term capital gain, on the difference between (1) sale proceeds; and (2) exercise price plus any amounts taxed as ordinary income for AMT purposes per above
  • if sale does not meet both above holding period requirements, (i) difference between fair market value of stock on date of exercise and exercise price taxed as ordinary income and (ii) difference between fair market value of stock on date of sale and fair market value of stock on date of exercise taxed as capital gains (LT/ST depends on holding period post-exercise).
  • The Company can take a deduction on amounts for which the Recipient paid ordinary income taxes.
  • Available only to employees
  • Exercise Price must be at least FMV
  • Term limited to 10 years (5 years for >10% shareholders)
  • Exercise Price must be at FMV at the time of issuance (110% for >10% shareholders)
  • Limited to first $100,000 in fair market value of equity at grant, the balance is NSO/NQO
RSAM
Restricted Stock Award
Recipient receives actual ownership of shares at the time of grant. Ownership will be subject to transfer restrictions and a repurchase right that applies to progressively less of the shares over time, which is how vesting is implemented Grant: None, except with respect to vested interests
Vesting: Taxable as ordinary income based on FMV of vesting stock (minus any purchase price paid) on the date of vesting, unless an 83(b) election has been made and a deductible expense of the company
Exercise: N/A
Sale: Appreciation since the vesting date is taxed as capital gain (LT/ST depends on holding period from the vesting date)
  • Recipient actually owns the shares and unless otherwise structured will have the ability to vote and receive dividends
  • The recipient either purchases the shares or if given to the recipient for no consideration, the FMV at vesting is taxable as ordinary income and a deductible expense of the company
  • As a result, RSAs are typically used early in the life of a company when
SAR
Stock Appreciation Rights
The recipient is not actually given shares. Instead the recipient receives a contractual obligation from the company to make a payout equal to the value of the appreciation of a specified number of shares upon the occurrence of a specified event or the passage of a specified period of time Grant: None
Vesting: None
Exercise: N/A
Sale: If the recipient receives the SAR payout in stock, appreciation from the date of receipt is taxed as capital gain (LT/ST depends on holding period from the vesting date)
 
RSU
Restricted Stock Unit
The recipient is not actually given shares at the time of grant. Instead the recipient receives the right to receive shares at a future date that can be a vesting date, a liquidation event, a specified date in the future, or some combination of these. This future date is established when the RSU is granted. Grant: None
Vesting: N/A see below
Exercise: N/A
Receipt: Upon receipt of shares, FMV of vested shares is ordinary income and a deductible expense for the company
Sale: Appreciation from the date of receipt is taxed as capital gain (LT/ST depends on holding period from the vesting date)