RSU (restricted stock unit) is an equity grant that converts to actual shares after the recipient satisfies vesting conditions — no exercise price, but tax typically hits at settlement.

How it works

Company grants 10,000 RSUs vesting over four years. Each vest date, shares settle into your brokerage account (public) or are held until liquidity (private). Taxable income equals fair market value at settlement unless a valid 83(b)-like treatment applies in rare structures — most employees owe ordinary income tax and payroll taxes when shares deliver.

Private startups may use double-trigger acceleration: RSUs vest on schedule, but settlement waits until IPO or acquisition to avoid tax before cash exists.

Compare to ISO/NSO options: options require exercise payment and different tax timing; RSUs are simpler administratively but can surprise employees with large withholding bills at public vest events.

Founders at incorporation usually get restricted stock, not RSUs; RSUs dominate at scale when 409A FMV is established and cap table admin is centralized.

Why it matters

• Founders / operators: Negotiate refresh grants, vesting cliffs, and whether company supports sell-to-cover withholding.
• Investors: Heavy RSU pools dilute common; refresh policies affect burn and retention in late-stage companies.

Common mistake

Treating RSU paper value as cash. Until settlement and a liquid market (or tender), vested RSUs may be unusable for rent — especially in private companies with no secondary program.

Related ideas

See also RSU tax, restricted stock, equity incentive plan, and 409A valuation.