Deal Terms
Stock Option
The right to purchase company stock at a fixed price (strike price) in the future — the primary equity compensation tool for startup employees.
A stock option gives the holder the right (but not obligation) to purchase a specified number of company shares at a predetermined strike price within a defined time period. Options are the primary equity compensation tool for startup employees because they require no upfront purchase — employees wait until exercise is advantageous (when shares are worth more than the strike price). Types: Incentive Stock Options (ISOs) receive preferential tax treatment (capital gains at exercise, potential AMT trigger) and can only be issued to employees; Non-Qualified Stock Options (NSOs/NQSOs) are taxed as ordinary income at exercise and can be issued to advisors and consultants. Options expire (typically 10 years from grant, or 90 days after leaving the company — though many startups now offer extended exercise windows). The option expiration after leaving is a critical, often overlooked employment term.