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Subject:   Stock Options and departing from private company
Date:   Thu, 10 Feb 2000
From:   Raymond

I have been granted stock options in a company that plans to go public in 1-2 years. I have vested in 25% of those shares. I'm planning on leaving the company and want to know two things:

• Do I lose all the options immediately, or just the unvested portion?
  
  
• If I do retain the vested shares, do I have to sell them to the company or can a non-employee still retain those shares?

--
Thanks,
Ray

Answer

Hello Ray,

1. In order to qualify as ISOs, you must have been an employee within three months before the date of exercise. (Section 422(a)(2).) This restriction doesn't apply to NQOs.
   
   See your employee benefits department or your plan documents for the details for your own company plans.
   
   In some cases, you are allowed to retain the stock options, but they are converted from Incentive Stock Options to Non-Qualified Stock Options.



2. Again, this will depend on your company's policies as much as legal restrictions. Non-employees may legally hold the stock of non-publicly held corporations, but many companies have restrictions on stock issued to employees requiring that the stock be resold to the company, or at least a right of first refusal.

I hope this helps!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options - Executive Tax and Financial Planning Strategies.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.