Hello Everyone,
Exactly what all transactions take place when employee exercise stock options?
And companies get tax exemtion because that already had been considered as expense when granted to employee?
Thanks
You might need to rephrase your question, I’m not sure what exactly you are asking.
When a stock option is exercised, the employee (in this case) buys or sells a stock at a previously agreed upon price.
The employee pays the company cash – the exercise price times the number of shares – and the employee receives the shares of stock.
I don’t know what kind of exemption you mean. The company does report an expense (for the fair market value of the options) when the options are granted, but issuing stock isn’t a taxable event, any more than borrowing money is.
Also, you must consider the handling of the transaction. CFO will increase off the bat because there is a tax benefit and companies will try to tackle the dilution by purchasing the stock thus CFF decreases. By the amount in which CFF decreases, increase CFF and decrease CFO.