Regulatory Compliance & Standards Flashcards

Under IRC Section 422, incentive stock options (ISOs) must be exercised within how long after termination of employment to retain ISO status?

Answer: 90 days (or 12 months for disability)

ISOs must be exercised within 90 days of termination (or 12 months if the termination is due to disability) to maintain their ISO tax treatment; otherwise they convert to NQSOs.

The alternative minimum tax (AMT) for ISO holders is triggered when:

Answer: The ISO is exercised (spread is an AMT preference item)

The spread between the fair market value and exercise price upon exercise of an ISO is an AMT preference item that can trigger AMT liability, even though no regular income tax is owed at exercise.

A company subject to the SEC's proxy advisory rules must include a 'say-on-pay' vote in its proxy statement. How frequently must this advisory vote occur, at minimum?

Answer: Every three years

Under Dodd-Frank Section 951 and related SEC rules, companies must hold a say-on-pay advisory vote at least once every three years.

Under ASC 718, an award that allows the employee to demand cash settlement at will is classified as a:

Answer: Liability award

If the employee has the ability to demand cash settlement, the award is classified as a liability and must be remeasured at fair value each reporting period until settlement.

Rule 144 under the Securities Act governs resales of restricted and control securities. Affiliates of a reporting company must satisfy a holding period before reselling restricted stock of:

Answer: 6 months

Affiliates must hold restricted securities for at least six months before reselling them under Rule 144, in addition to satisfying volume, manner of sale, and filing requirements.

The SEC's large trader reporting rules (Regulation 13H) require a person to register as a large trader if they effect transactions in exchange-listed securities of:

Answer: 2 million shares or $20 million in fair market value in any calendar day

Regulation 13H defines a large trader as anyone who effects transactions in NMS securities of 2 million shares or $20 million in fair market value during any calendar day.

Under the CEP examination framework, which regulatory body has primary jurisdiction over the administration of broad-based equity compensation plans for private companies?

Answer: The IRS and Department of Labor

For private companies not subject to SEC reporting, the IRS (tax rules) and Department of Labor (ERISA, if applicable) are the primary regulators of equity compensation plan administration.