Category: Stock Options

GRANTS OF STOCK OPTIONS BY LLCS

By , April 3, 2014 10:33 am

Stock options can provide a powerful means to attract and retain business talent and business investment.  LLCs taxable as partnerships can grant profits interests under Rev. Proc. 93-27 and even LLC economic interests generally similar to “non-qualified stock options,” but they can’t grant qualified stock options under IRC § 422, and  partnership tax issues arising from LLC grants of profits interests and non-qualified stock options can be complex.

However, if, under the Check-the-Box Regulations, LLCs elect to be classified as associations taxable as corporations, they can grant either non-qualified stock options or qualified stock options, and they can do so whether (i) they accept the default federal income tax regimen of associations taxable as corporations—i.e., C corporation taxation—or (ii) they elect into Subchapter S.

For an excellent discussion of the tax differences between qualified and nonqualified stock options as relevant not only to state-law business corporations but also to LLCs taxable as corporations, click here.