- RSUs vs. stock options: Key differences and how to choose
- RSUs and stock options: An overview
- Stock options
- Restricted stock units
- Key differences between RSUs vs. stock options
- Vesting
- Tax treatment
- Liquidity
- Value and risk: Which is riskier?
- Which should your company grant?
- Why do companies switch from stock options to RSUs?
- When are companies switching from stock options to RSUs?
- What happens if you switch too soon
- Other considerations:
- Choosing the right equity for your company
RSUs and stock options: An overview
Restricted stock units (RSU) and stock options are the two most common forms of equity compensation. RSUs are company shares granted to you for free once they vest, while stock options are the right to buy shares at a set price, known as the strike price or exercise price. That single difference, being granted shares directly versus buying them, shapes everything else about how the two types of equity work.
Both RSUs and options appear on your company’s cap table, the ledger that records who owns what. Understanding how each affects ownership is essential before you finalize your equity strategy.
Stock options
Stock options are a contract that gives you the right to buy company shares at a fixed price.
Key facts:
Strike price: The fixed price at which you can buy company shares, typically set at fair market value (FMV) on the grant date
Ownership: You own no shares when you receive an option—you only gain shares if you exercise it
Exercising: You buy shares by paying the strike price; you can only do this after options vest
Vesting: Unlocking the ability to be able to exercise options, typically subject to a timed schedule; you cannot exercise them until they vest
Cliff: An initial period you must complete before any options vest at all
Pros and cons of stock options
Pros:
More upside potential at high-growth companies
Employees can control the timing of their tax obligation
Allows participation in liquidity programs like tender offers
Exercised options allow employees to participate in far off liquidity events
Cons:
More equity burn required to deliver similar value to RSUs
As companies mature, exercise costs become a barrier to participation
The gap between preferred price and strike price narrows over time, reducing inherent value
Restricted stock units
A restricted stock unit (RSU) is a promise from your company to deliver shares once certain conditions are met. Unlike options, you do not buy anything. Shares simply transfer to you when your RSUs vest.
Ownership: Shares transfer to you automatically when RSUs vest; you don't buy anything
Value: RSUs always have value as long as the stock is worth something, since you pay nothing to receive them
Vesting: Usually time-based; you receive shares in portions as you stay with the company
Single-trigger: Vests on time alone, once you reach the time requirement, you get shares
Double-trigger: Requires both a time condition and a liquidity event (for example, IPO or acquisition) before shares are delivered
Pros and cons of RSUs
Pros:
Value is easy to measure—worth whatever the stock is worth at issuance
No purchase required, so less risk for employees
Less equity burn for the company to deliver similar value vs. options
Cons:
Employees have no control over timing or tax rate (taxed as employee compensation)
RSUs accrued under a double-trigger can be lost entirely if second trigger isn’t satisfied before RSU expiration date
Creates less alignment between employees and company
Offering RSU liquidity is currently very difficult
Key differences between RSUs vs. stock options
The simplest distinction: RSUs give you shares once they vest, while stock options give you the right to buy shares at a set price.
Factor | RSUs | Stock options |
Upfront cost | Free—no payment required | Must pay the strike price to exercise |
How you get shares | Shares deliver automatically when they vest | Shares deliver only after you exercise |
Value if the price falls | Still worth whatever the stock is worth | Can become worthless if the price falls below the strike price |
When you are taxed | At vesting | At exercise (this can potentially be avoided with incentive stock options) |
Main risk | Stock price drops after vesting, reducing value | Stock price never rises above the strike price, making options worthless |
Vesting
Vesting is the schedule that determines when you earn your equity. Both RSUs and options use vesting periods, but the mechanics differ. Most private RSUs have double-triggers, meaning they only vest after two conditions are met: a time-based vesting condition and a performance milestone, such as going public or a change in company ownership.
Stock options typically vest over a set period with a cliff at the start. After the cliff, remaining options vest gradually. After options vest, you must still exercise them to receive shares. RSUs require no further action. In either case, unvested equity is typically forfeited if you leave the company before it vests.
Tax treatment
Taxation is one of the biggest differences between RSUs and stock options.
RSUs are taxed at ordinary income rates when they vest. Because no property changes hands at grant, you cannot make an 83(b) election with RSUs.
Non-qualified stock options (NSO) are taxed at exercise on the spread between the strike price and fair market value as ordinary income, and any subsequent appreciation when sold is subject to capital gains tax.
Incentive stock options (ISO) are generally not taxed at exercise. Instead, you may owe taxes when you sell the shares, potentially at capital gains tax rates. However, the spread at exercise may trigger alternative minimum tax (AMT).
Most late-stage private companies grant RSUs with performance-based triggers, so you don't receive them (or get taxed) until there's some possibility of liquidity. Most public companies have single trigger RSU programs, and their stock is already liquid to some degree, so employees are taxed upon vesting.
Here's how RSUs and options compare in terms of taxes:
Security type | When are security holders taxed? | What type of tax? | Tax implications |
RSUs with performance trigger | At vest—when both triggers are satisfied | Ordinary income tax | Higher tax rates, no choice on taxable event |
Options | At exercise and sale (tax at exercise can potentially be avoided with ISOs) | Ordinary income tax but with potential for capital gains and AMT | Potential for lower tax rates, choice on when to exercise |
Liquidity
Because most private companies have RSU performance triggers (sale or initial public offering (IPO) of the company), private market liquidity is difficult. While companies can remove the performance-trigger, they need to be ready to cover tax obligations on time-vested RSUs. Currently, there is no easy platform that enables companies to do this.
If you're considering a direct listing and currently issue RSUs, a good portion of your stock plan will not be liquid as a private company. This makes it tough to get the transaction volume needed to price the initial offering. Sticking with options gives you more flexibility for private liquidity events and better price discovery before a public offering.
Security type | Liquidity options | Limitations |
RSUs with performance condition | IPO/acquisition | Can't easily run private liquidity events. At the point of IPO or acquisition, all accrued RSUs would be taxed, regardless if employees want to sell the vested shares or not. |
Options | Private secondary transaction, IPO, direct listing, acquisition | The only limits here are how often you and your company's board want to run liquidity events. |
Value and risk: Which is riskier?
As long as the company's stock is worth something, your vested RSUs retain value.
Stock options only pay off if the stock price rises above the strike price. If the price stays flat or falls, your options may expire worthless. Options are higher-risk, but they offer considerably more upside if the company grows. However, if you offer double trigger RSUs too early in the company’s life, the RSU may expire before the double trigger occurs.
For employees joining early-stage startups, options offer the chance to buy shares at a low strike price and benefit from future growth. For employees joining later-stage companies with higher valuations, RSUs offer more certainty because they do not depend on future price increases.
Which should your company grant?
The right choice depends on your company's stage, valuation, and talent goals. Most founders default to options early on and consider RSUs as the company matures.
Why do companies switch from stock options to RSUs?
Startups move from stock options to RSUs as they become larger for the following reasons:
RSU value is easier to understand than option upside
Exercising stock options becomes prohibitively expensive for employees
The company wants to limit dilution
A clear path to IPO or acquisition
In a tougher economic climate, it may make sense for companies to switch to RSUs instead because, unlike options, RSUs will still be worth something even if the stock price goes down. Option grants become underwater when the FMV falls below the strike price.
However, if the 409A valuation of the company drops significantly and then rises, options may look more attractive than RSUs during that window.
Generally, later stage companies are the ones that switch to RSUs. Early on, options make sense for a company because of the relatively low strike price and higher anticipated growth rate, as well as the uncertainty around if the company will satisfy the second trigger of an RSU before the RSU expires.
If you're a CFO of a mid- to late-stage company, timing matters.
When are companies switching from stock options to RSUs?
As a company's valuation rises, so does the strike price for new option grants. A higher strike price means employees need the stock to climb further before options become valuable. At some point, the upside potential shrinks relative to the risk.
According to Carta data, RSUs make up about 8% of equity grants at private equity–backed corporations, nearly three times the roughly 3% rate among startups. This pattern reflects the common progression: Companies issue options early and shift to RSUs as they mature. RSUs deliver value regardless of where the stock price goes from grant to vest. They become more attractive as the strike price creeps higher, and they simplify the employee experience: no exercise decision, no out-of-pocket cost.
The timing often ties to a company's 409A valuation. When your 409A rises substantially, it may signal that RSUs make more sense for new hires.
Here are some trends Carta has observed, though this is based on limited data:
On average, companies switch to RSUs 5.5 years after incorporation
On average, companies switch to RSUs at a post-money valuation of $1.05 billion
The right timing depends on your company's specific situation.
If you want to know when is the right time for your company to switch, download Carta’s free option and RSU grant calculator. This calculator lets you look at a specific grant and compare how it may change the total payout for the employee based on if they were granted options or RSUs (it does not account for taxes).
What happens if you switch too soon
At Carta, many companies switch to RSUs before they're ready. Here's how switching too soon can box a company in:
Can’t change existing RSU grants to options
Can't easily offer private liquidity
Big employee tax bill at vest (if planning to go public)
Switching while there is still room for a lot of growth limits employee upside
RSU expires before second trigger is satisfied an employee gets nothing
Once you switch, existing RSU grants can’t be converted back to options, so this decision deserves careful planning.
Other considerations:
Before moving to RSUs, forecast your accounting as you’ll recognize a significant expense when shares become liquid, which matters especially if you're planning an IPO. For example, Snapchat recognized more than $2 billion in a stock compensation expense charge. While option expense is spread out over the life of the award, double-trigger RSUs are expensed at vest. This means finance teams should plan for a significant expense charge following their listing. This type of expense is non-cash and an accounting entry that impacts your reported GAAP numbers, reducing reported net income.
RSUs also require more employee education than options, since vesting schedules, double-triggers, and tax timing are less intuitive.
Choosing the right equity for your company
RSUs and stock options serve different purposes at different stages. Options offer upside and simplicity for early-stage startups with low valuations. RSUs provide certainty and value for later-stage companies where the stock price is already high.
The right choice depends on your company's maturity, your employees’ expectations, and how you want to manage your cap table. Before you grant equity, model the decision on a live cap table to understand dilution, tax implications, and administrative requirements.
Whichever you choose, keeping grants, vesting, taxes, and cap table records in sync as you grow matters. One platform reduces errors and keeps your records investor-ready.
Carta’s equity management software helps founders design, issue, and manage equity programs from the first grant to exit.
Request a demo to see how a single platform can simplify your equity administration and cap table management.
DISCLOSURE: This communication is on behalf of eShares, Inc. dba Carta, Inc. ("Carta"). This communication is for informational purposes only, and contains general information only. Carta is not, by means of this communication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests. Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein. © 2026 Carta. All rights reserved. Reproduction prohibited.
