The U.S. Securities and Exchange Commission reports that many companies are using stock options as a way to attract and retain employees in the booming California business market. Employees granted stock options can profit by purchasing shares at a set exercise price and trading them at a higher price. Stock option incentives not only make employees more involved in your company but also provide an incentive for employees to help your Palo Alto business succeed. The better your business, the better your employees’ eventual payout.
The experienced Palo Alto business plan and stock option attorneys at Structure Law Group can use their expertise to review your stock option plan. We can analyze market trends and help you choose the best exercise price for your goals while protecting your legal interests. To schedule your stock option consultation, call our Palo Alto, California business attorneys today at 408-441-7500 or contact us online.
California Stock Option Law
Most stock option plans are regulated by state, not federal law. In California, stock options are actually “equity-based compensation” that provide employees an ownership interest in your company. The following are the main types of California stock options:
- Statutory Stock Options: Most employee stock options are statutory stock options. Employees only pay taxes under an employee stock purchase plan when the sell the acquired stock at a profit. You must have an employee stock option purchase plan in place to protect your employees from unanticipated tax consequences.
- Nonstatutory Stock Options: A stock option that isn’t a statutory stock option is a “nonstatutory stock option.” The difference between the option price offered and the actual fair market value of the stock when its offered is considered taxable income for that year.
- California Qualified Stock Options (“CQSO”): This type of option is only available if the option was issued between 1997 and 2002. If you’re converting your stock or changing your business structure after a previous qualified stock option offer, contact us today to discuss your options.
It’s important that your stock option plan meets certain IRC and IRS requirements. If it doesn’t, your employees may be left with unanticipated tax consequences. California statutory stock options, whether incentive stock options or employee stock options, cannot be discounted more than 15% to qualify. There are also minimum holding periods for employees to qualify them for preferential tax treatment.
Protect Your Business. Have a Qualified Palo Alto Stock Option Attorney Review your Plan Today
The type of stock option plan you choose will depend on whether the stock is being offered to key or rank and file employees. We can help you understand the legal incentives and consequences of offering a stock option and draft your agreements to protect your business and employees. If you’re a start-up company and the value of your stock is not readily ascertainable, we can help your employees understand their non-statutory stock options.
To schedule your Palo Alto business consultation and stock option review today, contact the California business attorneys at Structure Law Group, LLP at 408-441-7500 or online.