The purpose of the vesting date is to ensure the employee’s commitment to his job position and to making the company a success. A vesting date is a common feature of stock options granted as part of an employee compensation package. In other words, the option holder must wait until the option “vests” before he can purchase the stock under the option agreement. “ Vesting” refers to the date upon which the stock option becomes exercisable. If you decide to sell at the current per share price, you will enjoy an immediate profit of $50 per share ($100 sell price minus the $50 purchase price), less taxes, fees and any other applicable expenses. As the owner of the shares, you now have the choice of selling them or holding them. You will purchase your shares at the grant price ($50 per share). The price per share for the company stock is currently $100. The grant (strike) price of the option is $50 per share. You receive a stock option as part of your compensation package as a new employee at your company. The benefit of the option to the option holder comes when the grant price is lower than the market value of the stock at the time the option is exercised. What Does It Mean to Exercise a Stock Option?Įxercising a stock option means purchasing the shares of stock per the stock option agreement. As mentioned above, employee stock options have become a popular benefit given to new and valuable employees as an incentive to join a company and work hard to make the company a success. Note that a stock option is a right, not an obligation, to purchase the stock, meaning that the option holder may choose to not exercise the option.Īn employee stock option is a contract between an employee and her employer to purchase shares of the company’s stock, typically common stock, at an agreed upon price within a specified time period. Simply put, a stock option is a privilege giving its holder the right to purchase a particular stock at a price agreed upon by the assignor and the holder (called the “grant price”) within a specified time. It is highly recommended, therefore, that you consult with an attorney, accountant, or other experienced tax professional before exercising any stock option. ![]() Keep in mind that exercising stock options can be complicated, and result in significant financial and tax consequences. ![]() We’ll also offer some suggestions on where to turn for financial advice regarding your stock option questions. In this article, we take a look at stock options: what they are, how they are exercised, their tax implications, and more. For example, some people do not realize that an employee stock option has no real value until it is exercised. Stock options can be confusing to new employees receiving them, and even some employers offering them. Many employers now offer stock options in place of other popular benefits as a part of their employee incentive packages.
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