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Understanding the basics of equity

Types of stock options

What are the various types of stock options?

Value of equity

How do I calculate the value of my equity?

Calculating the value of equity is fairly straightforward. We'll just need to consider your strike price (for ISOs and NSOs), the number of shares issued, and the fair market value of the company.

To calculate the total value of equity:
Using the example above, we paid $2,500 to exercise or own the shares, which can now be sold at an FMV price of $24,000. The total value is calculated by subtracting the cost to exercise ($2,500) from our selling price ($24,000) resulting in a total value of$21,500.

Ideally, the company will grow over time, resulting in the FMV rising. As the FMV increases while the strike price remains the same, the total value of your equity increases.

The calculation for RSUs is much simpler since no cost to exercise is required. To calculate the total value of an RSU grant, multiply the number of shares owned by the current FMV of the company.


What's a vesting schedule?

Vesting refers to the predetermined schedule which dictates when an employee can take advantage of their equity. Typically vesting is based on a 3-5 year period, and encourages employees to work at the company for longer periods of time.

Some employers allow for early exercise which gives employees the ability to pay the strike price to own their ISO and NSO shares prior to vesting, but shares can only be sold once they are considered vested. If an employer does not allow for early exercising, shares must be vested before they can be exercised and sold. We describe three of the most popular vesting schedules below.

Selling shares

When can I sell my shares?


How do taxes impact my equity?

The bottom line: Stock options are a powerful benefit, but the tax rules are complex. Speaking with your compdesk advisor is essential to create a plan and determine how these taxes impact you.

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