Qualified Stock Option

A benefit granted, by a corporation, to an employee that permits the purchase of shares of its capital stock, under conditions laid down by the Internal Revenue Code. The IRS rules for a stock option are: (1) that the option plan must be approved by the stockholders, (2) that the option is not transferable, (3) that the exercise price must not be less than the market price of the shares at the time the option is issued, and (4) that the grantee may not own stock having more than 10% of the company’s voting power unless the option price equals 110% of the market price.

There is a limit of $100,000 per employee on the value of stock options exercisable in one calendar year. Qualified stock option profits are treated as capital gains.