An option that allows the option holder to exercise without actually paying cash for the options. Shareholders generally utilize this method if they plan on selling the shares immediately after exercising the options.
Employee stock vesting agreements generally have a cliff, usually one year, before which no employee stock options vest.
Employee Stock Ownership Program (ESOP)
A pool of options that is reserved for future employee compensation packages.
A form that must be returned to the company, along with any additional required items (including money or shares), in order for vested shares to be issued.
Incentive Stock Option (ISO)
Stock options that are generally only granted to employees or advisors. Generally, the option holder does not pay income tax on exercise - capital gains are paid based on when the stock is sold. The difference between the exercise price and the value at exercise is considered for determining implications of the "alternative minimum tax". Read our blog post for a deeper dive on startup employee compensation.
Non-Statutory Stock Option
Options that can be granted to anyone, including contractors or consultants. Generally taxed as ordinary income at the time of exercise based on the difference between the exercise price and the price paid for the options.
Stock Plan or Employee Incentive Plan
The Stock Plan is an assimilation of all the rights and economic interests that are attached to company stock, including the company's bylaws, grant documents, shareholder agreements, etc. See here for a full list of employee incentive documents that you should keep on file.
Generally, when something that is promised is delivered and ownership is officially granted to the recipient. For employees, shares generally vest according a predetermined schedule. Vesting effectively means that employees only receive their equity compensation after a period of employment to ensure alignment of interest between the company and the employee. The current market standard for vesting schedules is 4 years with a one-year "cliff". Typically, this means that 25% of the grant will vest after one year, and the balance will vest in equal monthly installments over the following 36 months. See our blog post on vesting schedules for additional information.
Restricted Stock (also known as RSU)
Represents a class of stock that has some restrictions on the transfer or sale of the instrument. Generally, most non-public stock has some restrictions, though they may vary depending on the issuer and holder. See our post on RSUs for a deeper dive.
Exercise Price (also known as Strike Price)
The amount that must be paid to execute your options. Generally, the exercise price is pegged to the "Fair Market Value" on the date of issuance, rather than the vesting date.