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Stock Options Key Actions Every Founder Should Take to Maximize Value
- Stock options offer a powerful tool for founders to incentivize and motivate employees to help drive long-term growth for both the company and its employees.
- The first key step is understanding the basics before offering stock options. Know that each share carries the right to buy shares at a set price — the exercise price. However, until the option is exercised, there is no actual ownership of stock.
- Offering stock options over restricted stock allows you to create an enticing incentive without the immediate financial burden for your employees. However, be mindful of the vesting schedules.
- The difference between Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NSOs) is critical and the decision between the two can have significant tax implications for both you and your employees.
- Timing your grants, especially the timing of vesting schedules, is important. The best time to grant stock options is when your company’s valuation is low, but it’s also important to regularly evaluate how you’re structuring future grants.
- Educating yourself and your team on tax implications is critical. Stock options can create a tax burden, so know how this will impact both you and your employees from the time options are issued to when they are exercised and sold.
- Early exercise options can also provide tax benefits, but complicates things, particularly with ISOs, so be clear on how early exercise impacts tax treatment and communicate these nuances to your team.
- By taking these strategic steps, stock options serve as a powerful incentive, aligning your team’s financial goals with the success of your startup.
- For founders, it’s important to get startup legal assistance in stock options, incorporation, and fundraising matters.
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