Comparing future share promises to immediate ownership
A restricted stock unit is a promise to deliver a share in future once conditions are met, with the employee holding no shares and no shareholder rights until then. A direct share grant, sometimes with restrictions such as a vesting linked buy back right, makes the recipient a shareholder from day one, even if the company can claw back unvested shares if the person leaves early, a difference that carries through to equity tax by country.
- RSUs avoid the need for the company to buy back shares from leavers, since nothing is issued until vesting
- Direct shares with restrictions require a buy back or forfeiture mechanism written into the shareholder agreement
- RSUs are simpler for companies that want a clean cap table until vesting is complete
- Direct shares can let early recipients start a capital gains holding period sooner in jurisdictions where that matters
Tax moments for restricted units and direct grants
| Feature | RSUs | Direct shares |
|---|---|---|
| Tax point | At vesting or delivery | At grant, on value received |
| Tax base if granted at low value | Full market value at vesting | Market value at grant, often lower early on |
| Capital gains holding period starts | At vesting | At grant |
| Risk of shares being worth less at tax time | Possible if value drops before vesting | Not applicable, valued at grant |
Because tax on direct shares is based on value at grant, granting shares very early, when the company is worth little, can mean a small or negligible tax bill and an earlier start to any capital gains holding period. RSUs delay the tax point to vesting, when the company may be worth considerably more, which can mean a larger tax bill despite the wait. See RSUs for the mechanics.
Matching equity instruments to company growth stage
- Direct shares suit very early stage grants where company value is low, minimising the tax due at grant
- RSUs suit later stage companies where an upfront share purchase or tax charge at low value is no longer realistic
- RSUs reduce company admin around buy back rights for leavers before vesting
- Direct shares give an earlier start to any favourable capital gains tax treatment on a future sale
Delayed delivery or immediate ownership: FAQs
- Can RSUs be granted at seed stage?
- They can, but many seed stage companies prefer options or direct shares because RSU tax treatment and payroll withholding at vesting is less established for very early companies.
- Do RSUs dilute the cap table before vesting?
- They are typically counted in the fully diluted cap table as a future obligation, similar to unexercised options, until shares are actually delivered.
- Is one instrument always cheaper in tax terms?
- It depends on the company's value at grant versus at vesting, and on local tax rules. There is no single answer that holds across all European countries.
General information for founders, not legal or tax advice. Thresholds and rates change, so confirm the current position with an adviser in the relevant country before granting.