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Stock Options – The Basics

Stock Options – The Basics


How do I turn my stock options into cash?

Stock options can be a tricky thing to comprehend and the terminology associated with these options can be rather confusing as well. To help combat the confusion that many employees experience when issued stock options, we have created a series of videos to help our clients better understand the elements involved in various financial situations. Today, we introduce the basics of employee stock options and will delve into the terminology that defines the standards of stock option procedures.

What is a…

Stock Option: Stock options are issued to employees by their employers as a promise to allow the purchase of company stock at a predetermined price.

Exercise Price: The exercise price is simply the rate at which any shares of company stock can be sold or purchased by the employee to whom the options have been granted too.

Option Agreement: This agreement is a set of documents that are essential for the full comprehension of your employee stock options and their rules, guidelines and procedures. This agreement will outline any and all possible events including shifts in power, mergers and acquisitions among other things.

Vesting Schedule: A vesting schedule is a predetermined amount of time in which an employee must wait before gaining control of their stock options. During this time, which is typically between 3-5 years, no sale or transfer of stock options is permitted.

Option Expiration Date: This date is the last day that any action can be taken on employee stock options. All options that are not exercised by this date are returned to the employer.

Employees can be granted many kinds of stock options, and while the terms of each individual option may be different, the terminology that we covered today will be useful in understanding the basics of any stock option you may receive. If you or anyone else you know is hoping to learn more about these terms and their stock options or employee stock options plan, then we urge you to contact Stock Connections, today.

Stock Connections specializes in working with San Francisco Bay Area companies that are involved in mergers & acquisitions, are raising capital, or creating stock option or other equity plans. We help start-up, private and public firms become – and remain – SEC-compliant. Stock Connections’ services are designed to help both start-ups and established firms comply with SEC and other regulations in their equity compensation programs. If you or anyone you know is looking to get involved with any of the above, we encourage you to contact us today.

Photo Credit: Tax Credits

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