What are the advantages of using warrants rather than NQSOs?
March 8, 2000
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