# RSUs

> A promise of shares, not a right to buy them: RSUs, and why later-stage companies use them.

Source: https://lopifi.com/learn/employee-stock-options-iso-vs-nso/rsus-at-later-stage
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**What is an RSU, and when do companies switch from options to RSUs?** A promise of shares, not a right to buy them: RSUs, and why later-stage companies use them.

A [restricted stock unit](https://lopifi.com/md/glossary/restricted-stock-unit) is a promise to deliver shares once vesting conditions are met. There is no strike and nothing to buy; the value of the shares is income when they are delivered. At an early company an option's appeal is its low strike; once the common is worth a lot, that appeal shrinks, and RSUs become the usual award.

**ISO**
- Pro: No regular tax at grant or exercise
- Pro: Capital gain if held two years from grant and one from exercise
- Con: $100,000 a year limit; employees only
- Con: AMT on the spread at exercise
- Con: Holding periods to meet
- Best for: Employees of an early-stage company

**NSO**
- Pro: Anyone can receive one
- Pro: No ISO conditions
- Con: Spread is ordinary income at exercise
- Best for: Contractors, directors, advisors — and the excess over the ISO limit

**RSU**
- Pro: Nothing to pay
- Pro: Worth something even if the price falls
- Con: Taxed when the shares are delivered, cash or not
- Con: No upside from a low strike
- Best for: Later-stage companies whose common is already valuable

Employee equity, by award

> “shall be made not later than 30 days after the date of such transfer.”

— [26 U.S.C. §83(b)(2)](https://www.law.cornell.edu/uscode/text/26/83), Property transferred for services, and the 83(b) election's 30 days

## Where this page's rules come from

- [26 U.S.C. §83(b)(2)](https://www.law.cornell.edu/uscode/text/26/83) — Property transferred for services, and the 83(b) election's 30 days (statute)
- [IRS Topic No. 427, Stock options](https://www.irs.gov/taxtopics/tc427) — ISOs at grant and exercise, NSOs at exercise, and the AMT (irs)

- **Track:** [Cap tables & raising](https://lopifi.com/md/learn/equity)
- **Part of:** [Employee stock options: ISOs, NSOs and RSUs](https://lopifi.com/md/learn/employee-stock-options-iso-vs-nso) — 3 min
- **Terms taught:** [Restricted stock unit](https://lopifi.com/md/glossary/restricted-stock-unit), [Incentive stock option](https://lopifi.com/md/glossary/incentive-stock-option), [Nonstatutory stock option](https://lopifi.com/md/glossary/nonstatutory-stock-option)
- **Previous:** [The 90-day exercise window](https://lopifi.com/md/learn/employee-stock-options-iso-vs-nso/post-termination-exercise-window)
- **Next:** [Securities law for raising money, Cap table · Lesson 7](https://lopifi.com/md/learn/securities-law-for-startup-fundraising)
- **The course:** https://lopifi.com/md/learn