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Stock Options - Help with mergers & acquisitions, raising capital, creating stock options and other equity plans

Archive for the ‘Stock Options’ Category

Employee Stock Purchase Plans – Understanding the Essentials Part 1


Photo Credit: AMagill

Employee stock purchase plans can hold immense financial purpose and benefit. Understanding the procedures and processes to properly capitalize upon the benefits of employee stock purchase plans is especially important.

This two part blog series will introduce four of the essentials for understanding employee stock purchase plans and will help better your financial experience. They first two essentials are:

  1. Know how to enroll and follow procedures: Employee stock purchase plans have very detailed rules for enrollment and they will differ with every company. Be sure to understand the procedures, forms and eligibility rules before enrolling in your own plan. Be conscious of what you are authorizing by signing these forms and enrolling into your plan. We also suggest being aware of enrollment dates with an understanding of an “election period” and “open enrollment.”
  1. Understand tax qualifications: There are multiple types of employee stock purchase plans and being mindful of both tax and non-tax qualified plans will help you understand your own employee stock purchase plan better. Having this understanding will also aid in the future filings of tax returns. Do your research and be proactive about educating yourself on all aspects of your plan and how your financial decisions can affect your taxations and general outcomes. Seek professional advice if necessary.

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!

Stock Options – 10 Rules for Effective Planning

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Working in a job that offers stock options does not always mean that you work in the financial industry and understand those options. As you can imagine this can sometimes make managing stock options a highly complex and intimidating endeavor.

In this post we will introduce five of the ten rules that will help anyone grab hold of various simple strategies that could help you plan for the effective future of your stock options.

1. Set obtainable targets and goals: Stock options have been used as talent incentives for years and they should be treated with the value that they possess. Set goals for yourself and your stock options and then determine what you want to gain from a future sale of stock. These goals can be as simple as take my wife on vacation or buy my son a car etc. Read the rest of this entry »

Strategy for Employee Stock Purchase Plans in 2012

We recently explained that the Bush tax cuts will be ending at the end of this year. With the expiration of these rates approaching so quickly upon us, changes in future taxation has led us to urge those with employee stock purchase plans to take great care in creating a year-end strategy for moving forward in the New Year.

There are various aspects to take into consideration when planning for the future of your employee stock purchase plans. Please keep in mind, however, that an increase in tax rates should not be the only reason to plan for a sale of stocks. The following are a few of the factors to consider when devising strategy for your employee stock purchase plans: Read the rest of this entry »

Startup Questions: Cash or Equity Compensation?

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A common question for startup companies is how much equity compensation, or shares of the business, they offer employees as part of their income. This can be an especially difficult question when the startup is new and the shares don’t hold much value yet.

What exactly is equity compensation? Because new companies don’t often have the financial means to attract high quality employees, many use this non-cash compensation as a way to give workers a form of ownership in the startup. Equity compensation refers specifically to stock options that include the right to purchase shares at a predetermined price, or exercise price. Over time, the option vests so the employee has the right to sell or transfer the shares, encouraging them to stay with the startup for a longer period of time.

It’s important to note that employees with equity compensation options are not considered stockholders so they don’t have the same right as shareholders. Equity compensation requires a lot of legal, accounting and tax planning, so it’s important for the startup and employees to look into the rules that apply to their situation.

How much should you offer in equity compensation? A Smart Bear explains that when someone works for less salary than they could make somewhere else, they’re making a cash investment into your company. How do you compensate through shares? Think about how much cash they’re giving up by working for the startup. Then make an educated guess as to how much the company could be worth in three or five years. Once you have those two numbers, you can determine what percentage of the company’s shares would be fair by dividing the cash the employee is giving up by the total amount you expect the startup to be worth in three or five years. Although it’s not an exact science, it will give you a good idea of a reasonable offer to make your employee. Read the rest of this entry »

5 Tax Return Mistakes to Avoid in 2012 – Part 2


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Many questions may arise when filing your taxes. In the previous part of this blog series we discussed three commonly made tax return mistakes. In this part, we’ll outline two more mistakes and what you can do to avoid them. Read the rest of this entry »

5 Tax Return Mistakes to Avoid in 2012 – Part 1

photo credit: x_JamesMorris

The 2012 tax season has the potential to be more confusing than most, especially if you sold any stock last year. Even if you hire a tax specialist to handle your tax return, you can benefit from knowing some of the basic income tax reporting mistakes to avoid. In this blog post, we’ll outline three common tax return mistakes you should stay away from. Read the rest of this entry »

Stock Options – How to Avoid Common Mistakes


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Stock options have the potential to show great reward and gain for employees who value them and are responsible with their grants. The end result of your stock option experience is directly dependent upon the amount of attention that is shown to the relevant details. Keep in mind that changes in the environment and in the climate can affect the value of your stock options.

There are a series of common occurrences that could impact your stock options. Be sure to educate yourself on these events so you can properly plan for your financial future. Your stock option agreement should have all the necessary information to further prepare yourself for the following situations, should they ever occur.

They are:

Termination: No one enjoys getting the boot at work, but if for some reason your employment is ended, it will be good to know how your personal stock options could be affected. Take this into consideration when questioning your employment.

Disability: Depending on your equity compensation plan and your individual stock options, your grants could be affected if you are unable to work due to injury or disability.

Market changes: A fluctuation in the stock market is to be expected; the value of stock options will commonly increase and decrease according to the market climate and can affect your exercise and sale timing. Your documents will have detailed information on your exercise options.

Divorce: Division of marital assets is not always something you can plan for. However, you can make yourself aware of your choices if the situation ever does occur.

Taxes: As with any equity compensation plan, there are specialized procedures for taxation. Each stock option will have various taxations, and in order to properly plan for any additional taxation or change in taxes, employees must be aware of the rules and standards set in place in relation to their equity compensations.

Change of control: Any shift of power, whether it be a merger or an acquisition can greatly affect a stock option plan and an employee’s options for exercise etc. Being familiar with the plan will prepare a stockholder for any change that may alter their options and will explain what they are able to do with their shares during a shift in power.

Here at Stock Connections, we specialize in equity compensation plans.  If you have any questions, we can help. Give us a call!

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!


Increase in Tax Rates – How They Could Affect Stock Compensation

Image Credit: Alan Cleaver

The current tax rates are set to expire at the end of this year, and unless they are extended it could affect your restricted stock/Restricted Stock Units (RSU) vesting, any option exercise or even Employee Stock Purchase Plans (ESPP).  However, it is important to keep in mind that the future possible changes in tax rates are not the only factor that could affect your stock compensation. Even a little increase in your company’s stock price can affect you.  Below are five different tax rates to keep in mind.

  • The Social Security rates could increase. Workers might have to pay 6.2%, up considerably from the current 4.2%. Keep in mind that these taxes apply to the yearly wage cap that is $110,100.
  • Under the new Affordable Health Care Act, Medicare tax rates will rise for high-income payers to 2.35% from the current 1.45%. Also, all capital gains will have a new Medicare surtax of 3.8% upon stock sales.
  • The capital gains rate that applies (currently 15%) could increase to 20%.
  • The dividend tax rate may rise all the way to 43.4% from 15%. This tax rate would apply to any of the dividends you have received on company stock.

Unless you have completely decided and planned on exercising your stock options very soon, increases in tax rates are not the only reason to take action.  You should be planning around your individual situation with taxes. It all depends on what your projections look like for potential increases in the stock price, the possible increase in taxes and how much time you have available to make a decision or exercise your options.

If you need help planning you taxes or have any questions regarding the tax rate and how it will affect your stock compensations give us a call. Stock Connections can help.

Employee Stock Options – Questions to Understanding Your Plan (part 3)

Image Credit: Philip Taylor PT

Today we are wrapping up the 3 part series of questions to understanding your option plan. These last four questions will go over strike pricing, statements, holding time and exercising your options.

Strike price – what is it and why do I care?

The strike price is a crucial aspect that essentially determines the value of the stock. Along with the expiration date, it is determined at the time of the grant.  This is important because it is the price you are paying for your options.

Are there certain forms I need to fill out? Will I get statements?

Getting statements really depends on your company. Some companies will update the employees on the status of the stock and others won’t.  There are different forms to fill out if you are reporting these options to the IRS or including them in your tax returns. Read the rest of this entry »

Incentive Stock Options: What Are They and Why Should I Want Them?


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A form of equity compensations, incentive stock options provide unique tax benefits and complexity for employees and employers who are seeking smart stock options. But why are they so good, why should you want them and what do you do once you have one? Those questions are answered here.

Why are incentive stock options something to want? Why are they so great?

As opposed to non-qualified stock options, incentive stock options allow the avoidance of two hefty tax disadvantages. With non-qualified stock options, an employee is required to report all taxable income when their option is exercised and a stock is purchased. Additionally, that income is subject to tax at a rate that is much higher than that of any long term financial gains. These disadvantages have led many to seek incentive stock options for a multitude of reasons, one large one being the avoidance of these taxations.

Incentive stock options eliminate the need to tax in the way non-qualified options are taxed. With these stock options there is no income to report at the time of exercise. Furthermore, if the incentive stock options are held for an extended period of time, they could potentially earn long term capital gains if the predetermined holding period has expired.  However, if the shares are sold early, they are immediately taxed as ordinary income.

How do you go about getting incentive stock options?

Incentive stock options are usually included in a stock option plan that is traditionally adopted by a compensation committee or board of directors. How an employee qualifies is a dependent on the terms set forth by the board.

What do you get with your incentive stock option?

Besides the tax benefits and the obvious stock benefits, an employee will receive documentation of the stock options with all appropriate details of the option. Additionally, you will receive a stock option agreement; all of the stock option’s rules and regulations will be listed here. Be sure to pay attention to all of the details within this document so you can answer future questions as they present themselves.  Questions you will be able to answer could include the following:  When can I exercise? How do I exercise? How long are my stock options valid? Etc.

Incentive stock options are only one of the many facets associated with equity compensation plans; if you are anyone you know if looking to create an equity compensation plan of any kind, we encourage you to contact us today. Here at Stock Connections, we specialize in equity compensation plans and are prepared to answer any questions you may have regarding your own plan, incentive stock options and beyond.

What is the Sarbanes-Oxley Act and Why Do I Care? (Part Two)


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As we learned in our last post, the Sarbane’s Oxley Act is a piece of legislation set forth to help maintain and promote a high level of integrity when it comes to financial reporting. We have already discovered details about the first five titles within the act but with eleven total titles we still have plenty to share. Just to review, the first five titles involved the public company accounting oversight board, auditor independence, corporate responsibility, enhanced financial disclosures and analyst conflicts of interest.  The titles that we will cover in part two are equal in importance and help create a positive and responsible financial environment.
The remaining six titles are as follows:


6. Commission Resources and Authority: The sixth title of SOX maps out the SEC’s ability to bar securities professional from practice and further defines the ways that other professionals like brokers, advisors and dealers can also be barred from practice.


7. Studies and Reports: This title requires the SEC and Comptroller General to create multiple studies based on various financial findings. Examples of these studies would include studies on consolidation, credit rating agencies and various scandals like Enron and Global Crossing.
8. Corporate and Criminal Fraud Accountability: In its entirety, this title includes the specification of penalties for financial crimes like manipulation and destruction of records while also placing a level of protection on any reporter of a financial crime.


9. White Collar Crime Penalty Enhancement: Title 9 of SOX increases the penalties for anyone associated with conspiracies and white collar crime. It recommends stronger sentencing and clearly defines certain practices as criminal.


10. Corporate Tax Return: This being one of the simplest titles to understand defines signing responsibility and states that the CEO should be the signer of all federal tax returns.


11. Corporate Fraud Accountability:  The final title defines various aspects of fraud as criminal offenses (e.g. tampering) and identifies the penalties of those crimes. This title also gives the SEC authority to temporarily freeze suspicious payments for investigation.


As you can see, the eleven titles included in the Sarbanes Oxley Act map out a wide array of issues that have effected financial and corporate crime in the past. While it is a hard topic to understand, here at Stock Connections, we do specialize in SOX and SEC compliance, if you have any questions, please feel free to contact us. We are happy to help.

Equity Compensations: Four Plans Every Employee Should Know

4 Types of Equity Plans

Equity plans are popular among employers.

Equity Compensation has been very popular among employers in the Silicon Valley for many years. These plans provide innovative options for employers to motivate their employees and assist in creating a positive work environment.  Stock options and financial incentives are attributes that job hunters look for when searching for a quality workplace, but with various plans and options in existence it can be overwhelming to try and understand all the options that an employer can offer their team members.

There are four common types of equity compensation plans:

Restricted Stock Unit: A restricted stock unit involves a company giving employees a designated amount of shares at no cost. These shares eventually become vested after a pre-determined amount of time and what this means is that ownership does not occur until the shares are fully vested. This plan is often merit based and is a form of deferred equity compensation used to promote loyalty among employees as well as to retain quality and skilled team members.

Restricted Stock Award: A restricted stock award is very similar to the restricted stock unit. In this case, a company grants a determined amount of shares also at no cost but instead of ownership occurring after a vesting period it occurs at the time of the grant. Typically, the shares are released to the employee over a three to four year vesting period and the purpose is to monitor employee performance as well as to encourage future quality of work. 

Employee Stock Purchase Plan: An employee stock purchase plan usually involves a voluntary salary deduction of up to 15% of an employee’s salary to be deducted from each paycheck; the funds are  placed in a non-interest bearing account. The money deducted during a pre-determined amount of time is used to purchase company shares at a discount from the fair market price. This plan allows the use of an employee’s own money to purchase shares with low risk.

Employee Stock Option: An employee stock option is a tactic used by companies to motivate short-term goals among their employees. A number of shares are reserved for employee purchase and are vested over time, allowing growth and company value to build. It encourages employees to behave in ways that boost the company’s stock value.

All of these plans have tax implications for both the employee as well as the company and must be reported in an accurate and timely fashion to various tax authorities.

Equity compensation plans can be difficult to understand and while the four basic plans have been introduced in this post, it is best to seek professional advice if you are considering implementing a plan or if you have questions concerning your own plan. Here at Stock Connections we specialize in equity compensation plans and we encourage you to contact us with your questions. We are happy to help. 

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New Mandatory IRS Reporting for ISO & ESPP Transactions in 2010

- Are you aware of the new 6039 rules?

– These new requirements apply to PRIVATE as well as PUBLIC companies

- If ANY employee exercised an Incentive Stock Option (ISO) or purchased company stock through the Employee Stock Purchase Plan (ESPP) in 2010 the new legislation mandates this information be reported to the employee by January 31, 2011 and to the IRS by February 28, 2011 (or March 31, if filing electronically).

– Late reporting, inaccurate data or non-compliance can lead to fines of up to $1,500,000.00.

– No equity software currently on the market can create the necessary forms or filings.

- If you are prepared, please let me know that you have a plan and implementation process.

– If you are NOT prepared, please send me a request for a Free 6039 Project Plan immediately.

I’ve created several solutions from very basic to a full solution to cover the reporting, filings and employee communication so that you can focus on what you do best and still comply with these new regulations.  We make it as painless, timely and cost effective as possible.

Contact me today if you have questions, concerns or know any other companies who might benefit from our services.

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