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LSDefine
Simple English definitions for legal terms
incentive stock option
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A quick definition of incentive stock option:
Incentive Stock Option: A type of stock option that is given to employees as a reward for their hard work and dedication to the company. This option allows employees to purchase company stock at a discounted price, which can be a great way to invest in the company and potentially earn a profit. However, there are certain rules and restrictions that must be followed in order to qualify for this type of option.
A more thorough explanation:
Definition: An incentive stock option is a type of stock option that is granted to employees as a form of compensation. It allows employees to purchase company stock at a discounted price, usually at the current market value, and hold onto it for a certain period of time before selling it for a profit.
Example: Company XYZ grants John, one of its employees, an incentive stock option to purchase 1,000 shares of company stock at $10 per share. The current market value of the stock is $15 per share. John exercises his option and purchases the shares for $10,000. He holds onto the shares for two years before selling them for $20,000, making a profit of $10,000.
Explanation: In this example, John is granted an incentive stock option as a form of compensation for his work at Company XYZ. He is able to purchase the company's stock at a discounted price and hold onto it for a certain period of time before selling it for a profit. This allows John to benefit from the success of the company and incentivizes him to work hard to improve the company's performance.