Employee Stock Options: 1, 2, 3

March 12, 2019

 

 

Most employees aren’t taught much about their employee stock options. And unfortunately, most of what’s out there on the internet falls somewhere between confused and wrong. Plus, it’s often put forth by someone with no expertise in the subject or worse, by someone with substantial conflicts of interest. The following is an unbiased guide to your employee stock options...

 

Stock

Owning a share of stock in a company makes you an owner of that company.

 

If you own a share of Apple stock, you are a part owner of Apple Incorporated. If you own a share of stock in a private company called Digital Widget, you’re a part owner of Digital Widget.

 

For public companies like Apple, the price of a share is determined in stock markets between buyers buying and sellers selling. For private companies like Digital Widget, the price (also called fair market value or FMV) of a share is determined by an independent valuation firm the company hires each year to perform what is often referred to as a “409a valuation” for the Internal Revenue Code Section involved.</