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Stock options for consulting work rather than paying cash?

I believe there are special debits and credits for paying a consultant in stock options vs cash...What are the debits and credits if a consultant provides $50k of consulting and gets zero cash but gets $50k of stock options?

Answers

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

Typically I've called these "warrants", to distinguish from things that employees get that vest and that are reported differently.

I believe in your case it is a pretty simple DR: Contractor exp, CR: Warranty Liability. I'm pretty sure you use the 123(r) valuation for this.

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

Oh,
And check out Jim's technical note here:
https://www.proformative.com/questions/accounting-for-warrants

Robert Ewalt
Title: Exam Development Manager
Company: Institute of Certified Management Accoun..
(Exam Development Manager, Institute of Certified Management Accountants) |

How acceptable is this to the consultants? They may need the cash to pay their expenses, and the concentration of so much risk may not be appropriate for their personal investment planning.

Topic Expert
Malak Kazan
Title: VP, Special Projects
Company: ERI Economic Research Institute
(VP, Special Projects, ERI Economic Research Institute) |

For non-employee equity compensation plans ASC subtopic 505-50 also provides guidance.

ArLyne Diamond
Title: Owner - President
Company: Diamond Associates
LinkedIn Profile
(Owner - President, Diamond Associates) |

Sometimes you choose to take stock options in lieu of cash, or as partial payment to help our a new company you really like. The downside though, is as a consultant, you don't have the measure of control that executive employees or board members have.

I'm very careful about making this decision - I have to really respect the CEO and other members of the team before I will cut a deal that doesn't include fair compensation for my services.

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