Equity 101 Part 1: Startup employee stock options Part 1: Startup stock options 101. The classic stock option is an option to buy a share of stock at a specified price.

For starters, it’s important to note that there are two types of stock options: Non-qualified stock options(NQSOs) are the most common. Startups give out stock options to align their employees to the goals of the investors. Say you get to buy some number of shares for a penny each.

Stock Option Plans permit employees to share in the company’s success without requiring a startup business to spend precious cash.

Typically, a company will have a stock pool, after each round of funding, to give out to employees.

In fact, Stock Option Plans …

This pool is roughly between 10-20% of the total shares outstanding and dolled out depending on service, rank and the whim of the board.

5 years later, the stock goes public and three years after that it’s run up to $200 per share. A stock option contract typically represents 100 shares of the underlying stock, but options may be written on any sort of underlying asset from bonds to currencies to commodities.

Stock Option Plans permit employees to share in the company’s success without requiring a startup business to spend precious cash. Companies often offer stock as part of your compensation package so you can share in... Types of startup stock options.

In fact, Stock Option Plans can actually contribute capital to a company as employees pay the exercise price for their options. So here are some points to keep in mind, whether you’re the founder offering options to your startup employees, or the employee being offered the options.

For example, your are granted 5,000 shares of stock at $4 per share in a startup. They do not receive special tax treatment from the federal... Incentive stock options(ISOs), which are given to executives, do receive special tax treatment. A stock option gives an investor the right, but not the obligation, to buy or sell a stock at an agreed upon price and date. You can exercise the option, paying $20,000 to buy 5,000 shares of stock which are worth $1,000,000.