Not many employees receive unbiased, yet experienced education on their stock options. This post is a start, and an onsite Health Talk is a next step!
Owning a share of stock makes you an owner in that company. If you own a share of Apple stock, you are a part owner of Apple Inc and entitled to receive dividends the company pays, vote on matters that come before shareholders, etc.
An option is the right, but not the obligation, to buy a share of stock at a specified price (exercise price) for a specified period of time.
There are two types of options, Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NQSOs or NSOs). They work the same way, but ISOs are potentially treated more favorably when it comes to taxes.
An IPO is an Initial Public Offering – the first time the company will sell shares (part of its ownership) to the public. The company hires an investment bank to underwrite the offering and they value the company, help sell shares to the public, and get shares trading in public stock markets.
BTW – you’ve probably been wondering how to estimate the value of YOUR options or shares. Here’s a simple approach – most companies’ shares are priced between $10 and $20 at IPO. So, multiplying the number of shares you have (or the number of options to buy shares) x $15 gives you a good approximation of the value you’ll have IF your company has a successful IPO.
Big 3 Considerations
There are three things to keep in mind when thinking about what to do with your options:
1. Exercising your options means you are spending and risking your own money.
2. The likelihood of an IPO (or sale of the company) is lower earlier and higher later.
3. Taxes are lower earlier and higher later.
You now have a basic idea of the workings of employee stock options – feel good, stock options are a way for you to participate financially in the success of your employer!
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To schedule a one hour, on-site Health Talk on Financial Wellness email hello@fitpros.