If you’re considering a move from employee to consultant, it’s normal to wonder, “What happens to my stock options?” I hear this concern often—because options can represent years of hard work and a meaningful part of your financial picture. The good news is that with a little planning, you can usually avoid unpleasant surprises.
Below are the most common issues to watch for. (Exact outcomes depend on your company’s plan documents and your new agreement.)
1) Your status change may be treated as a “termination”
Many equity plans define eligibility for option vesting based on being an employee. When you switch to a consulting arrangement, the plan may treat that as a termination of employment, even if you keep working with the company.
Why it matters: termination triggers key deadlines—especially how long you have to exercise any vested options.
2) Vesting may stop—or it may continue under a new agreement
Typically, unvested options stop vesting once employment ends. Some companies will negotiate continued vesting for consultants, but it usually must be explicitly documented.
Action step: Ask for clarity on:
- Whether vesting continues while consulting
- Whether you’ll receive a new equity grant or amended vesting schedule
3) The post-termination exercise window is a big deal
If you’re treated as terminated, you may have a limited period to exercise vested options—commonly 90 days, though plans vary.
If you miss the deadline, vested options can expire—even if they’re “in the money.”
4) Your option type (ISO vs. NQSO) can affect taxes and timing
Two common types:
- ISOs (Incentive Stock Options): Often require you to be an employee to keep favorable tax treatment. After termination, ISOs may need to be exercised within certain timeframes to remain ISOs; otherwise they can convert to NSOs.
- NQSOs (Nonqualified Stock Options): Different tax rules may apply, often with ordinary income elements when exercised.
Because tax outcomes can be complex, it’s wise to coordinate with a qualified tax professional before you sign the consulting agreement or exercise.
5) Don’t overlook company-specific rules
Plans may include details about:
- What counts as “service” (employee vs. contractor)
- Treatment of options in a rehire/return-to-employee scenario
- Repurchase rights, blackout periods, or insider trading policies
- What happens if you consult through an LLC
A simple checklist before you decide
Consider gathering:
- Your equity plan and grant agreements
- The company’s definition of termination and continuous service
- Your vested vs. unvested breakdown and expiration dates
- The exercise window and any ISO-related deadlines
If you’d like, we can review your option paperwork together and map out key dates and decision points—so your transition supports both your career goals and your long-term plan. (And we’ll loop in tax/legal guidance where appropriate.)