What Happens to Unvested Restricted Stock Units (RSUs) When a Company Closes or Receives an Acquisition?

The fate of unvested restricted stock units (RSUs) can significantly impact an employee's financial situation, especially when a company faces a significant change like an acquisition or dissolution. The outcome depends on the specific terms outlined in the company's equity compensation plan, the specifics of the transaction, and any relevant employment agreements. Here, we explore the various scenarios and their implications.

Company Acquisition

When a company is acquired, several potential outcomes might occur for unvested RSUs:

Acceleration of Vesting: The acquiring company might choose to accelerate the vesting of unvested RSUs, allowing employees to receive their shares shortly before the acquisition closes. Conversion to New RSUs: Unvested RSUs might be converted into RSUs of the acquiring company, typically with adjusted vesting terms. Cancellation: If the acquiring company does not provide any value for the unvested RSUs, they might be canceled, meaning employees would lose those units.

Understanding the terms of the acquisition and the company's equity compensation plan is crucial to knowing what to expect.

Company Closure

In the case of a company closure, the outcomes are generally more straightforward:

Cancellation: Unvested RSUs typically become worthless and are canceled if the company shuts down with no assets to distribute. Liquidation: If the company's assets are liquidated, there might be a chance for employees to receive some value for their unvested RSUs, although this is less common. Employees often rank lower in the distribution hierarchy and might receive a minimal amount.

Employment agreements can also play a significant role in determining the outcome. Reviewing the relevant documents or consulting with HR or legal counsel is highly recommended.

Tax Implications

Any changes in the status of RSUs can have tax implications. For example, if unvested RSUs are accelerated and vested, employees may be subject to taxation on the value at grant or exercise, depending on local tax laws. Consulting a tax professional is advisable when facing an acquisition or closure scenario.

Ethical Learning from Past Experiences

Prior experiences can provide valuable insights. As stated in a personal anecdote, unvested RSUs can be a significant opportunity. In one instance, an offer came with a large amount of RSUs, but the decision had to be made within two days. Declining the offer, due to various reasons, meant missing out on a significant financial opportunity. If accepted, the RSUs would have vested immediately on a change of control and, given the subsequent acquisition, would have led to substantial financial gain.

Reflecting on these experiences, it's clear that making such decisions with full understanding and preparation can significantly impact one's financial situation. Furthermore, understanding the specifics of RSUs and the terms of any offer is crucial in such high-stakes situations.