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Date:   Wed, 15 Mar 2006
From:   Kurt

Hi, Michael.

I've been offered some NQOs from a start-up company for providing contract/consulting services. I am part owner of a small consulting company (S corporation) and the start-up company is a client of ours. The client is offering the options to me personally. I'm wondering if there is any restrictions to offering me options in the name of my company instead.

Thanks!
Kurt

Answer

Date:   Sat, 18 Mar 2006

Hello Kurt,

It's okay if your client gives the options to your company.

If they don't, there might be some legal issues relating to this arrangement for you to discuss with your attorney.

Since the contract is between the client and your corporation, the option could be considered as going to you "by way of" your corporation, as compensation. (Regulations Section 1.83-7(a).) This could be a taxable transfer, but if the option price is the same as or greater than the fair market value of the stock, no tax will probably result.

What do the other shareholders think about being left out? Again, since this is a corporate client, I think you should have their written consent.

Good luck!

Mike Gray

For more information about non-qualified stock options, request our free report, Non-Qualified 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.