Will the new stock options bill encourage startups to give more employees stock options? by @R44D
Answer by Raad Ahmed:
If passed, the bill will allow employees at startups to defer taxes on their stock options until the stock is publicly traded or after 7 years, whichever comes first. The incentive here is not for the startup to offer more stock options, but for more employees to accept payment by stock options. Employees will be allowed to defer taxes in the stage of the business where the value of their options is still small but growing to a time where, hopefully, their options are much more valuable.
Again, I don’t think the bill will encourage startups to offer more stock options, but it may encourage more employees to ask for and accept stock options. A startup already has incentive to offer stock options to its employees because they are usually strapped for cash at the time and stock options let them pay employees without paying cash. An employee, however, would rather be paid in cash. But, if the stock options provide enough value, they will be more willing to take them over cash.
Stock options for employees in startups can be especially valuable because they give the employee a stake in the success of the company. The stock options will be more valuable as the company becomes more valuable, so in turn the employee’s compensation will become more valuable as the company becomes more valuable. If everything goes right, the employee will receive stock options at a low price and sell them later at a much higher price as the company is worth more money.
But, like some of the other answers point out, this bill is not yet law and the likelihood of it becoming law depends on your view of the political process. If it does become law, it is still hard to see that it would significantly increase the amount of stock options in the startup community. It would make such options more valuable and may marginally increase the total amount, but in general stock options are pretty common already.
If you still have questions though and want to learn more about how stock options could work in your startup, I encourage you to visitwhere you can hire a quality attorney for a price that works for you. We offer no obligation price quotes and free consultations!