Statutory Stock Option

AAA

DEFINITION of 'Statutory Stock Option'

Also known as incentive stock options, this type of employee stock option gives participants an additional tax advantage that unqualified or non-statutory stock options do not. Statutory stock options require a plan document that clearly outlines how many options are to be given to which employees, and those employees must exercise their options within 10 years of receiving them.

Furthermore, the option exercise price cannot be less than the market price of the stock at the time the option was granted. Statutory stock options cannot be sold until at least a year after the exercise date and two years after the date the option was granted.

INVESTOPEDIA EXPLAINS 'Statutory Stock Option'

The taxation of statutory stock options can be somewhat complicated. Exercise of statutory stock options will not result in immediate declarable taxable income to the employee (one of the chief advantages of this type of option.) Capital gains tax is then paid on the difference between the exercise and sale price. This type of option is also considered one of the preference items for the alternative minimum tax.

RELATED TERMS
  1. Employee Stock Option - ESO

    A stock option granted to specified employees of a company. ESOs ...
  2. Employee Stock Ownership Plan - ...

    A qualified, defined contribution, employee benefit (ERISA) plan ...
  3. Runoff

    The procedure of printing the end-of-day prices for every stock ...
  4. Stock Option

    A privilege, sold by one party to another, that gives the buyer ...
  5. Stock Compensation

    A way corporations use stock options to reward employees. Stock ...
  6. Stock

    A type of security that signifies ownership in a corporation ...
Related Articles
  1. Solutions For Concentrated Positions
    Investing Basics

    Solutions For Concentrated Positions

  2. Getting Acquainted With Options Trading
    Options & Futures

    Getting Acquainted With Options Trading

  3. The Dangers Of Options Backdating
    Options & Futures

    The Dangers Of Options Backdating

  4. The
    Options & Futures

    The "True" Cost Of Stock Options

comments powered by Disqus
Hot Definitions
  1. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  2. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  5. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  6. Budget Deficit

    A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer ...
Trading Center