SOLOWAy | Schwartz
Technology Law Experts
Continued: ISOs and NQSOs - What's the Difference?
If your stock option doesn't meet all of these tests, it's non-qualified. You can award NQSOs to anyone who provides services to the company, including employees, directors, consultants, advisors, even vendors. But beware of a tax trap for NQSOs -- if the exercise price is less than the fair market value of the underlying stock on the grant date (a situation we sometimes call an "in-the-money-grant"), you become subject to Section409A of the Internal Revenue Code. Section 409A is extremely complex, and failure to comply results in a nasty and punitive excise tax. For that reason, no company should ever grant an employee stock option, whether ISO or NQSO, with an exercise price below the fair market value of the underlying stock on the grant date.
© 2013 by Robert G. Schwartz, Jr. All rights reserved Disclaimer: This summary is provided for educational and informational purposes only and is not legal advice. Any specific questions about these topics should be directed to an attorney.