# Stock Option - Two types - Incentive Stock Options (ISO) for employees. - Non-statutory Stock Options (NSO) for board members/consultants. - Restricted Stock Award - 409A Evaluation, to make sure that you pay nothing but the long term capital gain. - In the event of Change of Control, all the stocks will be vested immediately (as cash!) -- You will pay income tax for it. - ESOP = Employee Stock Ownership Plan ## Parameters - Grant date = the date you get the options - Number of shares - Strike price - You can buy the shares at this price - 409A evaluation, the Fair Market Value of the stock option. - The FMV would change every year (or more frequently). You would want to see FMV >> strike price. - Issue date, ISOs are good for 10 years. - Vesting schedule (negotiable) - 1 year cliff = can only exercise option after a year - 4 years monthly vesting - Liquidity event, all your vesting happens immediately, and all the shares are bought by the new owner - Expiration date (e.g. 5 years, or 3 months after leaving) ## Tax - To receive favorable _income tax_ treatment - 1 year from exercise date - 2 years from grant date - ISOs are only taxed when you sell the options (or in Change of Control event) - Alternative Minimum Tax (ATM) - Even lower tax - But you need to hold on to the stocks for extra period - If the stock price plummeted, you're still liable to pay the same amount of tax.