October 14, 2026
RSAs (restricted stock awards) are real shares issued today, subject to vesting. RSUs (restricted stock units) are a promise to deliver shares later, once they vest. Startups use RSAs at the beginning, when the share price is nominal and an 83(b) election keeps the tax cost at zero. RSUs are a late-stage tool.
Key takeaways
| RSA | RSU | |
|---|---|---|
| What it is | Shares issued now, subject to buyback until vested | A promise to deliver shares when vested |
| Recipient pays | Fair market value at issuance | Nothing |
| 83(b) election | Available | Not available |
| When it’s taxed | At issuance with an 83(b); otherwise as shares vest | When shares are delivered |
| On the cap table | Issued and outstanding | Fully diluted, until delivered |
| On leaving | Unvested shares can be bought back | Unvested units are forfeited |
Restricted stock for founders, first hires and early advisors while the share price is nominal. Stock options after the first 409A valuation. RSUs mainly at later-stage companies, when option exercise prices get high. At private companies, RSUs usually require both vesting and a sale or IPO before they’re delivered, so employees aren’t taxed on shares they can’t sell. Companies that expect to go public usually set RSU vesting on the same quarterly dates for everyone, rather than each person’s start date, to keep administration manageable after the IPO.
When options stop working as a hiring tool. That usually happens for one of three reasons: the exercise price has climbed so high that new hires worry they can’t afford to exercise, the valuation has swung enough that people fear their options will end up underwater (worth less than the exercise price), or the pool is running low. An RSU has no exercise price, so it keeps some value even if the share price falls, and because each unit delivers a whole share rather than just the growth above an exercise price, the company can deliver the same grant value with fewer shares. Because of the downsides below, RSUs rarely make sense until a sale or IPO is reasonably in view.
The first cost falls on the company. When an RSU settles, the value of the shares is wages, and the company must withhold the employee’s income and payroll taxes and pay them to the IRS in cash. Holding back some of the shares to cover the tax doesn’t solve this, because the company still has to send the cash from its own bank account. That’s why private-company RSUs usually wait for a sale or IPO before they settle: the exit creates the cash.
The second cost falls on the holder. RSUs have a fixed term, often around seven years, and if no sale or IPO happens before it ends, they expire and the holder gets nothing, even if every unit has time-vested. RSUs also fit poorly into secondary sales and tender offers, so holders usually can’t use them for early liquidity. And once a company’s equity sales cross the enhanced-disclosure threshold in the SEC’s Rule 701, it must give each RSU recipient that disclosure, including financial statements, a reasonable time before the RSUs are granted. See Startup Employee Equity for more on Rule 701.
Talk to a tax advisor. See 83(b) Election.
It depends on the merger agreement and any acceleration terms. Vested RSAs are treated like other common stock. RSUs may be paid out, converted into the buyer’s equity, or cancelled. See Stock Options in an Acquisition.
