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Subject:   NQSOs vs. Warrants
Date:   Thu, 17 Feb 2000
From:   Tom

Hello,

I have heard that start-ups have been using warrants to compensate service providers and consultants instead of NQSOs. What is the advantage and disadvantage of issuing the warrants vs. the NQSOs?

Thanks

Tom

Answer

Date:   21 Feb 2000

Hello Tom,

I haven't heard much about this practice.

A warrant is an option.

If it is issued in connection with employment (either for employees or independent contractors) and the warrant isn't publicly traded, it will probably be taxed like a non-qualified stock option.

If the warrant is publicly traded, it has an ascertainable value. In this case, the fair market value of the warrant is ordinary income when it is issued. However, there is no additional ordinary income when the warrant is exercised.

I hope this helps.

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.