| Purpose:
To examine the feasibility of company stock options under
specific Securities and Exchange Commission and the Internal
Revenue Service guidelines.
Employee stock options are issued to employees as a form of
incentive compensation. Employee stock options have special
risks of forfeiture (e.g., termination of employment, required
holding periods and non-transferability restrictions), and
other contingencies that make them different from publicly
traded options. In order to examine the feasibility of stock
options, the Securities and Exchange Commission and the Internal
Revenue Service require a valuation of the company under specific
guidelines.
There are six common types of stock options:
- Incentive Stock Options (ISO)
- Non-Qualified Stock Option
- Restricted Stock Options
- Stock Appreciation Rights
- Phantom Stock
- Employee Stock Purchase Plan
Different plans will produce different results in terms of
federal income tax consequences, actual equity ownership by
employees, monetary investment by employees and the incentive
provided to employees.
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