What is ISO vs NSO?
ISO vs NSO
Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NSOs) are two types of employee equity options that differ in tax treatment, eligibility, and Alternative Minimum Tax (AMT) triggers.
Why It Matters for Startups
Governs the legal rights and ownership distribution of the entity; configuring ISO vs NSO is critical for managing long-term cap table health and alignment during designing startup equity incentive compensation plans.
Detailed Deep Dive
Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NSOs) are two types of employee equity options that differ in tax treatment, eligibility, and Alternative Minimum Tax (AMT) triggers.
Frequently Asked Questions
Q:What is the primary tax difference between ISOs and NSOs?
ISOs can qualify for favorable capital gains tax treatment upon exercise and sale if held long enough, whereas NSOs incur ordinary income tax on the spread at exercise.
Q:Who can receive Incentive Stock Options (ISOs)?
ISOs can only be granted to full-time employees of the company, whereas NSOs can be granted to employees, advisors, consultants, and board members.
Quick Facts
- CategoryFinance & Legal
- Key ApplicationDesigning startup equity incentive compensation plans
Coverage Trend12 Weeks
Related Startup Terms
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