FAQ:

Upstock's RSUs

Stock Options

RSAs

Restricted Stock units

Promise for stock or cash award at a future date. No upfront purchase necessary. Shares only issued at a later date if company has liquidity

Promise for stock or cash award at a future date. No upfront purchase necessary. Shares only issued at a later date if the company has liquidity. Shares must be purchased by a predetermined date at a predetermined price, often costing employees a large amount of money. Requires 409A valuations.

Restricted Stock Awards

Aka "Founders Equity." Voting rights. Shares must be purchased. If early enough, the share price can be low. May require 409A valuations.

Grant Date

Date Of Issue

Date Of Issue

Date Of Issue

Vesting Triggers

Double Trigger: Time based or Performance milestone based, plus a liquidity event ( acquisition or IPO).

Single Trigger: Time based. Common schedule is 4 years with a 1 year cliff.

Single Trigger: Time based. Common schedule is 4 years with a 1 year cliff.

Negative Vesting
Impacts

No Negative Impacts

Employees may not be able to purchase shares (because of high cost).

Company may choose to claw back shares if an employee leaves or is terminated.

Exercise Price

Zero. No upfront cost to employee.

The fair market value of the stock on the date issued based on 409A.

The fair market value of the stock on the date issued.

Option To
Purchase

No purchase necessary. RSUs are converted into shares or cash and granted  to employees.

Option to purchase after award has vested, based on predetermined strike price. Must exercise within 7 years of 409A.

Employee must purchase at grand date, otherwise must pay tax if company decides to grand shares of no cost.

Convertability

Possible, but not generally recommended to switch from RSUs to stock options or RSA due to cost.

Easy, and generally recommended to convert options to RSUs to save on cost and complexity. If using Upstock, conversion ( surrendering of options) is built into the RSU creation workflow.

Possible, but not generally appreciated because RSA holders do not want to lose voting right or tax treatment.

Taxation

Income tax upon liquidity
‍Upon IPO, RSUs are converted into stock and taxed as income. A portion of RSUs will be sold to pay taxes owed. Upon Acquisition, RSUs converted into stock and immediately into cash. Portion of cash used to pay tax.

Capital gains tax if converted to stock.
‍ Non-qualified stock options ( NSO ) are taxed as regular income on the difference between the grand price and FMV.

Incentive Stock Options (ISO) are for active employees only, and taxed at capital gains rates if converted to stock.

Capital gains tax.
‍ If offered for free. employee must pay tax on FMV.

If purchased by employee, no initial tax due.

If subject to vesting, employee may choose to file section83(b) election at grant to defer annual tax until sale.

Deferred Taxation

Double trigger RSUs defer taxation until a liquidity event. 10 or more year limit in most jurisdictions.

Taxation of options are deferred until exercised. Must meet 409A exemptions to be deferred, with 7 year limit.

Taxation cannot be deferred.

Voting Rights

None

Yes, upon exercise

Yes

Set Up Fees

No set up fees if you self onboard. Otherwise $500.

$10,000 on average to set up.

$5000-$10,000 to set up.

Cost

Set Up Fees

Small monthly fee per team member. No 409A or lawyer required.

Ongoing legal fees to add new employees, or make adjustments. 409A/Lawyer required.

Initial legal fees to add founder/early team members. on going fees to make adjustments, or value the company.

Implementation
Needs

List of team members with equity allocations.

List of team members with equity allocations, annual 409A valuations, attorney to draft documents.

List of team members with equity allocations, annual 409A valuations, attorney to draft documents, possibly ongoing valuations.

Vesting stop upon termination, worker retains vested awards. Team members may lose equity if fired for cause.

Vesting stop upon termination, or accelerates the option window before the grant terms expires. Company retains vested options.

Employee keeps all vested shares. Unvested shares may be bought back by the company.

Vesting accelerated, RSU converted into cash.

Vesting accelerated, Options converted into cash.

Vesting accelerated, RSAs converted into cash.

Vesting accelerated, RSU converted into cash. Team members can sell portions of shares to pay tax.

Vesting accelerated, Options converted into shares. Team members can sell portionsof shares to pay tax.

Vesting accelerated, RSAs are already shares, into shares. Team members can sell portion of shares to pay tax.