RSU (Restricted Stock Unit)
A promise to deliver company shares upon vesting, more common at later-stage and public companies than early-stage startups.
An RSU is a grant of company shares that the holder receives once vesting conditions are met, without needing to purchase the shares or pay an exercise price, unlike a stock option. RSUs have real value the moment they vest, since no exercise decision or upfront cash outlay is required, making them simpler for the recipient to understand and use.
RSUs are far more common at later-stage private companies and public companies than at early-stage startups, partly because RSUs are taxed as ordinary income at vesting based on the stock's fair market value at that time — which requires the stock to have real, known liquidity value (or the company to cover the tax withholding), something early-stage private companies with illiquid stock generally can't easily support.
Early-stage startups should generally stick with stock options rather than RSUs, since options let recipients control the timing of their taxable event (choosing when to exercise) — RSUs make more sense once a company has enough scale and liquidity (or is close to a public listing) to handle the tax and withholding mechanics well.
Why do early-stage startups usually grant options instead of RSUs?
Because options don't trigger a taxable event until exercised, giving the holder control over timing, while RSUs are taxed as ordinary income at vesting regardless of whether the recipient has any way to sell illiquid private stock to cover that tax bill.
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