Restricted Stock Units (RSUs) in private companies work similarly to those in public companies, but with some unique considerations:

Key Differences

1. Limited liquidity: Private company RSUs may not be easily transferable or liquidatable.
2. Valuation challenges: Private companies may struggle to value RSUs for financial reporting purposes.
3. Regulatory compliance: Private companies must ensure compliance with relevant securities laws and regulations.
4. Limited transparency: Financial information and operations are not publicly disclosed.

RSU Mechanics

1. Grant: The company grants RSUs to eligible recipients.
2. Vesting schedule: A vesting schedule is established, outlining the number of shares that will vest over time.
3. Vesting conditions: Vesting may be subject to performance conditions, service requirements, or other conditions.
4. Vesting: The recipient earns the underlying shares according to the vesting schedule.
5. Settlement: The company issues the underlying shares upon vesting.

Tax Implications

1. Ordinary income: RSUs are taxed as ordinary income when the underlying shares vest.
2. Capital gains: If shares are sold, any gain is subject to capital gains tax.
3. Tax withholding: Private companies may withhold taxes at vesting or settlement.

Private Company RSU Considerations

1. Cliff vesting: Shares vest after a specified period (cliff).
2. Double trigger vesting: Shares vest upon a change in control or termination.
3. Performance-based vesting: Shares vest based on meeting specific performance targets.
4. Valuation methodologies: Private companies may use valuation methods like Black-Scholes or Monte Carlo simulations.

Best Practices

1. Clear communication: Ensure recipients understand RSU terms and conditions.
2. Compliance: Consult with legal and tax professionals to ensure regulatory compliance.
3. Valuation accuracy: Accurately value RSUs for financial reporting purposes.
4. Tax planning: Consider tax implications and withholding requirements.

Tools and Resources

1. Private company HR software: Utilize platforms like Workday, BambooHR, or ADP.
2. Equity compensation platforms: Platforms like EquityBee, StockWave, or EquityBloom.
3. Legal and tax professionals: Consult with experts familiar with private company RSUs.

Consult with your company’s HR, legal, and tax professionals to ensure compliance and optimal RSU design.