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So start off right: Plan ahead. Your first step is planning. ... Manage your equity. ... Set some guidelines for stock options. ... Get a 409A valuation. ... Use the 409A to set the strike price. ... Adopt your vesting and cliff schedule. ... Set an expiration timeline. ... Create an ESO agreement and get your board's approval.
Virtual stock options (VSOs) It's a way for you to reward your contractors without actually granting equity in your company. As they are tied to your company's performance, VSOs are a great way to incentivize your contractors. However, because they're paid in cash, they're always subject to income taxation.
Contractors can own equity much in the same way as employees can own equity. The contractor earns equity while they are continually providing services to the company. If the contractor stops providing services, then they will no longer continue to earn equity.
Increased contractor loyalty And once you've found them, you want to incentivise them and build stronger relationships ? even if you don't plan to hire them as an employee. Offering stock options sends a clear signal to your contractor that you value their work and are willing to invest in their future.
Non-qualified stock options offer workers, whether independent contractors or regular employees, the right to obtain a certain amount of the company shares for a set price. Employers tend to offer NSOs as an alternative type of compensation, to make sure they remain loyal and work for the company's best interests.
The income related to the option exercise should be included in the Form W-2 you receive from your employer or 1099-NEC from the company if you are a non-employee. Any capital gain or loss amount may also be reportable on your US Individual Income Tax Return (Form 1040), Schedule D and Form 8949 in the year of sale.