Double-Trigger RSUs and Stock Options in Private Companies: Key Provisions, Tax Implications, Risks, and More

Strafford

This CLE webinar will provide attorneys with an in-depth analysis of utilizing double-trigger restricted stock units (RSU) and stock options in private companies. The panel will discuss key provisions in structuring RSUs and stock options as part of a compensation plan, the differences between RSUs for private versus public companies, tax implications to employees, and risks associated with holding RSUs in private companies.
Description

Double-trigger RSUs and stock options are popular forms of equity compensation for private companies. Executive compensation and benefits attorneys must have a clear understanding of applicable federal tax rules and restrictions regarding the inclusion of RSUs when structuring compensation plans and how the inclusion of double-trigger provisions are significant for private companies.

RSUs represent a contractual right to a certain number of stock shares, or cash payment of equal value, to an employee subject to a vesting schedule. The shares, or the cash equivalent, are not delivered until vesting and forfeiture requirements are satisfied, and the holder has no voting rights during the vesting period.

For private companies, a double-trigger vesting structure provides significant advantages. This RSU award design requires that vesting be conditioned on both the continued employment or service of the holder and the occurrence of the company's IPO within a specified award term.

RSUs are taxed as regular income, making the terms of any vesting schedule a key item to consider for both employers and employees. However, the taxation of RSUs can be deferred even after vesting, allowing the employee to coordinate the timing of tax recognition and must comply with Section 409A.

Listen as our panel discusses the challenges of incorporating double-trigger RSUs in compensation plans for private companies, available planning techniques, restrictions under Section 409A, and other critical structuring considerations.

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