Can my corporation receive NQSOs?

March 22, 2006

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.



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

Mike Gray

For more information about incentive stock options, request our free report, “Executive Tax and Financial Planning For Non-Qualified Stock Options”.

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