Stock Options for Startups, Founders & Board Members: ISOs vs. NSOs

This article both stands alone and also serves as the companion piece to our simultaneously published article on Post-Termination Exercise Period (PTEP), which addresses the trend for startups and growth companies of extending the exercise period for employees and delves into the business, tax and legal issues involved in rolling out a plan for extending PTEP. As we explained in that article (our PTEP Article), any discussion of PTEP has to begin with an understanding of the difference between incentive stock options (ISOs) and non-statutory options, also known as non-qualified stock options or “non-quals” (NSOs).  This article outlines the core differences, noting that it is always going to be easier to extend PTEP if you have used NSOs rather than ISOs for the reasons explained below.

We – a deal lawyer and a compensation and benefits lawyer with more than 50 years of practicing law, almost evenly split between us – have also tried to include some of the most frequently asked questions we receive.