{"id":73,"date":"2018-04-16T12:13:17","date_gmt":"2018-04-16T12:13:17","guid":{"rendered":"https:\/\/epiksolution.org\/startup-company\/blog\/?p=73"},"modified":"2019-08-12T11:39:16","modified_gmt":"2019-08-12T11:39:16","slug":"what-is-the-difference-between-an-iso-and-an-nso","status":"publish","type":"post","link":"https:\/\/www.startupcompanycounsel.com\/blog\/what-is-the-difference-between-an-iso-and-an-nso\/","title":{"rendered":"What Is The Difference Between An ISO And An NSO?"},"content":{"rendered":"

For many California business employers, stock options are a key part of their compensation packages<\/a>.\u00a0 In some instances, employee stock options<\/a> are the main form of compensation, while in others, it is a small portion of the overall compensation package. \u00a0But how do new corporations and small business owners initiate and successfully manage these business transactions? \u00a0What do each of these business transactions even mean? California business owners\u00a0Incentive Stock Options (ISOs)<\/a> and Non-Qualified Stock Options (NSOs)<\/a> are two different forms of stock options that a corporation can give and qualification refers to eligibility for special tax treatment.\u00a0 For example, ISO stock options provide a tax break that NSOs do not.<\/p>\n

What Is The Difference?<\/em><\/strong><\/p>\n

An ISO is a special form of stock option that is given special treatment under the tax code: it is not subject to income tax, based on the fact that it is an incentive to the employee. \u00a0Because of this, ISOs can only be issued to employees of a company, a parent company, or a subsidiary.<\/p>\n

In contrast, NSOs are<\/em> subject to income tax, and can therefore be granted to anyone (employees, consultants, directors, etc.).<\/p>\n

Creating and managing stocks, whether ISO or NSO, can be a very tedious process and can have a large impact on the business itself.\u00a0 Capital gains<\/a> tax liability applies to any stock or security obtained in the exercise of a stock option, regardless of whether it was an ISO or NSO.\u00a0 It is important to discuss the options with an experienced California corporate attorney who can advise on the best options for each specific corporation<\/a>.<\/p>\n

Why Do Employers Choose NSOs? <\/em><\/strong><\/p>\n

There are many reasons an employer may choose to issue NSOs instead of ISOs in their compensation packages. \u00a0Among the most common are:<\/p>\n