Converting Informal Advisory Work into Series A Equity Grants
Informal advisory work converts into Series A equity by replacing pre-seed social obligations with formal board-approved option grants tied to forward vesting.
non-statutory options
Meaning
Equity compensation models allow the holder to purchase shares at a fixed price regardless of the current market value. These non-statutory options are often issued to consultants, advisors, founders and partners who do not meet the strict criteria for incentive stock options. They offer a flexible way to reward contributors without the rigid constraints of a qualified plan.
Tax Treatment
The spread between the strike price and the fair market value is taxed as ordinary income at the moment of exercise. Because non-statutory options trigger a tax event when they are used, the holder must have the cash available to cover the liability. This differs from other equity types where the tax is deferred until the shares are actually sold.
The company usually receives a tax deduction equal to the amount of income recognized by the recipient.
Recipient Eligibility
Unlike incentive stock options which are reserved for employees, these instruments can be granted to almost any service provider. Using non-statutory options allows a startup to compensate external contractors or board members with a stake in the company. This broad utility makes them a common tool for building a network of supporters.
Exercise Flexibility
There are fewer federal restrictions on the total value of shares that can vest in a single year or the window for exercising after leaving the firm. The board of directors has the power to set the terms of non-statutory options to fit the specific needs of the transaction. This adaptability is useful when negotiating with high-level executives, strategic partners, long term consultants and vendors.
Every grant represents a unique contract between the company and the provider. Retention of top talent is often the goal of these customized equity arrangements.