Rights of Non Qualified Stock Options

1. Ignore the "non qualified" part - it only impacts how you get taxed when you profit, not what kind of control or ownership you have over the company.

2. Stock options are pretty simple: they are the right to buy stock later at a price set today. Whenever you exercise your stock options, you will then own stock in the company. That stock probably belongs to the "common class". If you have 5% of the stock of the company, then that's how much of the company you own, and (roughly) how much decision power you have.

You have to read the bylaws and shareholders agreements.

As other people said, a stock option is the right to buy stock, not stock itself. Until you exercise the right and buy the stock you probably don't have voting rights, although your companies bylaws may say otherwise.

Every company has it's own bylaws which determine how the company is run. It's not directly based on a percentage of ownership.

For example, at Stack Overflow, there are two kinds of stock: preferred and common. The preferred shareholders own a minority of the stock. They have the right to elect one board member. They also have the right to veto any merger or acquisition. The common shareholders own a majority of the stock. They have the right to elect two board members. The board itself has the right to select the CEO. The CEO actually makes decisions.

In other words: until you read the bylaws and shareholder agreements and understand how a particular company is run, there's no reason to assume that merely owning 51% of the shares of a company gives you control of the company.

The option itself isn't ownership. So if an employee has options that they could excerise that would put them above the 51% point, they would be majority share holder and yes be able to run the company.

I don't know the exact accounting that goes into recognizing the option liability but in effect the company needs to set asside shares to be purchased at the various prices that the strike or excersise price that is on the option contract that was provided by the company. So the price of the stock is in the agreement of what it can be excersised at. Very likely it would be set above the current market price of what the firm is at. This allows the person who owns the option to buy the stock from the company at the agreed price after the market price has gone above it and then sell it for a profit.