What are stock options and restricted stock?
Option grants and restricted stock awards are the two most commonly used forms of equity compensation in emerging businesses. Stock Options Stock options are contractual rights to purchase shares of a company’s stock at a specified price during a specified term. Options are commonly used as incentive compensation in both large and small businesses. They are typically granted with an exercise price equal to the fair market value of the underlying security (almost always common stock) on the date of grant. Therefore, the option holder benefits from any increase in the value of the underlying security after the date of grant. There are two broad categories of compensatory options, incentive stock options and non-qualified stock options, a distinction based purely on tax treatment. The grant of a stock option, whether incentive or non-qualified, is not a taxable event. Where incentive stock options and non-qualified options differ from a taxation standpoint is at exercise. The exercise of
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