Why are ISO stock options termed "statutory"? Because they are defined by some sort of statute? If so, then what is the statute?

Similarly, why are ISOs termed "incentive" stock options whereas NQOs are not. To me, it seems as if both would serve as incentives for workers. Is this just a historical thing? Or is there some sort of intuition here I'm missing?

Finally, why are NQOs termed "non-qualified". What are they 'not qualified' in regards to?

I'm trying to get some insight on stock option naming, so I can better remember the different types.

1 Answer 1


Both NQO and ISO are stock options offered for employees and directors as extra incentives and compensation for the work on that specific company.

The non-qualified means that they are not restricted by waiting periods, profit, price, employee status or any other stipulation. When employees sell shares after they vest, they have the potential to receive immediate, unlimited profit. Unlike NQOs, the ISO are subject to many restrictions. They must be held for a much longer time period, and thus can carry more risk; however, they have a higher potential for better returns.

Source: https://www.priorilegal.com/corporate-governance/stock-options-isos-vs-nqos

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