While I intend to go much more in depth on equity, especially stock options, I wanted to start with an approachable short comparison. Plus my writing is rusty and I could use some practice.
But First, a Word of Caution
Terms like “grants” and “options”, like all words, are made up. A grant at one company can look very different from a grant at another (within some bounds).1
In future posts I’ll give recommendations for catching these differences, through for now “don’t sign anything you haven’t read” will have to do.
I won’t bother with qualifications like “usually”: if you don’t want generalizations you’re going to have to read more than 560 characters.
Options, offered by smaller startups, let you buy stock later at a price set today. You owe taxes when you buy the stock, which happens if the company sells or IPOs. You have to buy and pay taxes (28%) on gains within 90 days of leaving or you lose it. Some startups will convert the options to a type that is taxed as income when you leave so you don’t lose them.
Grants, offered by larger companies, are given to you. You owe taxes when you “receive” them, so you won’t receive them until the company sells or IPOs to avoid this. They’re taxed as income.
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For example, while it’s generally considered common knowledge that you keep vested grants after leaving a company, I know of one private company whose stock plan did the opposite: when you leave the company you forfeit your grant. Sneaky isn’t it?
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