Why are companies using RSU vesting before going public?

Why are companies using RSU vesting before going public?

Recently, other large private tech companies with valuations over $1 billion— known as unicorns because they are vanishingly rare—that expect to go public within a few years have used RSUs. This creative form of compensation helps these companies attract top technical talent, and incent and retain employees, in ultra-competitive job markets.

How often do restricted stock units ( RSUs ) vest?

In addition to providing for regular vesting, a graded vesting schedule may, alternatively, have varying intervals between vesting dates: Example: You are granted 20,000 RSUs. One year after the grant date, 25% of the shares vest (5,000). The remainder (15,000) vest every month (625 a month) over the next two years.

How are restricted stock and RSU benefits taxed?

In principle, the restricted stock and RSU benefits, if reimbursed to the parent company for the cost of such benefits, should be a deductible expense for the subsidiary’s income tax purposes. However, exchange control approvals generally are required for such reimbursement arrangement.

Are there any unicorns that have RSU vesting?

Since Facebook’s IPO, other private tech giants—both unicorns and non-unicorns—have followed suit. Dropbox, Lyft, Pinterest, Uber, and others disclosed double-trigger RSU arrangements in SEC filings prior to their IPOs.

When do fully vested RSUs need to be deferred?

For example, for a grant of fully vested RSUs to be made in 2019 by a calendar year company, the initial deferral election rules may require the deferral election to be made by December 31, 2018. (Note that these are general rules; the actual taxability of RSUs should be assessed in the context of the particular terms of the RSU.)

What are restricted stock units and RSUs used for?

Restricted stock and RSUs used to be granted only to key employees and executives or as a replacement stock grant when you were leaving behind valuable stock options at another company. For a long time, stock options were the grant of choice for rank-and-file employees and managers.

How are deferred RSUs paid under Section 409A?

With respect to the timing of payment, Section 409A requires that deferred RSUs be paid (or begin to be paid if installments are elected) on one of the following Section 409A-permitted events: The payout triggered by the permitted event may occur in a lump sum or in installments, but in general it cannot be accelerated.

Is it advantageous to delay income tax event for RSUs?

As described below, delaying the income tax event for RSUs can be advantageous for the recipient. However, the FICA tax event, in contrast to the income tax event, for employee holders of RSUs cannot be delayed. FICA tax is due for RSUs upon vesting, even if payment of the RSUs is delayed.