I had a longish discussion with A Canadian company about them integrating my product into their product. They’re not overloaded with cash, and said they’d like to compensate me primarily with shares.

Don’t worry I know to make sure I get some cash, and royalty rather than just shares, but he was surprised when I said don’t you mean options, he said surely I’d prefer shares?

Their share price at the moment is in the toilet, but it could reasonably be expected to increase 10 fold over the next 5 years if their new product sells well. Anyway I’m wondering about tax.

I assume that if they grant me say 30k worth of shares this year, then that would be judged as income. The upside being that if the shares did increase in value and I’d held them 2+ years, the increase would be tax free.

If they granted me option, there would be no immediate tax issue. If I exercised the options, and held the shares, assuming I had the money to do so there would still be no tax issue, and finally if I sold them 2 years after exercising the options there would still be no tax.

That’s my understanding anyway, a share grant has the advantage that you don’t pay for the shares, and they are always worth something, but the value of the shares is considered income.

With options you do pay for the shares hopefully at a price way below their current value. And if the share price remains below the strike value, the options are worthless. So the options are more tax efficient, and causes the company future rather then current pain to issue them?