Question: Orig on Quora)
The only difference I can find is that with restrictive stock the employee technically owns it upon granting and can do a 83-b. Also restrictive stock dilutes the company at granting. Restrictive stock units will dilute when they vest and the employee can not do a 83-b upon granting.
Answer from Dan Walter
This is a great question.
High level Summary. For Restricted stock awards shares are issued as of the award date, making people immediate shareholders (voting and dividends etc.). For RSUs the shares are issued only after vested (no voting until vested, no real dividends, only the possibility of dividend equivalents.)
Restricted Stock (RSS)
- It is correct that Restricted stock allows a participant to file an 83(b) Election @What is an 83(b) election?
- RSS allows the company to avoid any need for a IRC 409A valuation What is a 409A valuation?
Restricted Stock Units (RSU
- Much easier to link to performance goals than RSS
- Much easier (mechanically) to take back from participants if they leave the company
- When designed correctly allow the possibility of the participant electing to defer their full rights to the stock until a later date (great if you already have a lot of money)
- Easier to settle in cash
- When vesting occurs, may be FAR less dilutive since it is possible to issue only the Net shares (full vesting less amount equal to Taxes owed)
Detailed answers can be found in the following two posts. (It didn’t seem to make sense to rewrite these)
Restricted Stock: Equity Compensation – Restricted Stock Shares, Always a Great Tool, Sometimes
RSU: Equity Compensation – Restricted Stock Units (RSUs), Downside Protection with a Couple Downsides
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