A stock option is the right to buy a set number of company shares at a fixed price, called the strike or exercise price. A restricted stock unit (RSU) is a promise to deliver shares, or sometimes their cash value, once vesting conditions are met. There's no purchase price. Cooley's IPO practice describes RSUs as designed to deliver, or "settle," shares upon satisfaction of vesting conditions.

That one difference drives almost everything else: what the award is worth, what it costs to hold, when tax shows up, and why different kinds of companies choose one over the other.

This is reference material, not legal or tax advice. Tax rules and securities law vary by country, plan and deal, so have counsel and a tax adviser review any real grant.

Side-by-Side Comparison

The table below describes the general US pattern. Each company's plan and award agreement sets the actual terms.

	Stock option	RSU
What you get	The right to buy shares at a fixed strike price	A promise to deliver shares (or cash) when vesting conditions are met
Cost to acquire	You pay the strike price to exercise	No purchase price; taxes are generally due on settlement
Value if the share price falls below the strike	Nothing to gain: the option is "underwater" and you wouldn't exercise it	Still worth the current share price, because there's no strike to beat
Value if the price rises	The gain is only the difference between price and strike	The full share price, on every share delivered
US tax timing	ISOs: generally no regular income tax at grant or exercise (possible AMT). NSOs: generally taxed on the spread at exercise when value isn't readily determinable	Generally taxed when shares are delivered at settlement
Typical stage	Early-stage private companies	Later-stage private companies and public companies
Share usage	Fewer shares are usually needed for the same intended value, since only the spread counts	More shares are usually needed per grant, since each unit is worth a full share

How Options Work

Options vest over time, and the holder pays the strike price to turn vested options into shares. WilmerHale describes the industry-standard schedule as four years with a one-year cliff, meaning 25% vests after one year, followed by month-to-month vesting for the remaining three years. That article is about founder stock, but employee option grants often follow a similar pattern. See vesting schedules for the mechanics.

The strike price isn't a free choice. For a nonstatutory option to stay outside the US deferred compensation rules, 26 CFR 1.409A-1 requires that the exercise price may never be less than the fair market value of the underlying stock on the grant date. Private companies therefore usually get an independent valuation of their common stock before granting. Our employee option pool article covers 409A, ISOs vs NSOs and pool sizing in more depth.

Two costs sit with the holder:

Cash to exercise. You pay the strike for every share you buy, and any tax due on top.
A clock after you leave. For an incentive stock option, 26 U.S.C. 422(a)(2) requires the person to have been an employee at all times from grant until three months before exercise. In practice, that means exercising within about three months of leaving to keep ISO status. Plans can set their own windows for nonstatutory options.

How RSUs Work

An RSU has no strike and nothing to exercise. When the vesting conditions are met, the company settles the award by delivering shares. Cooley's IPO practice notes that taxes are generally due upon settlement.

Treasury's section 83 regulation helps explain the timing. 26 CFR 1.83-3(e) says "property" doesn't include an unfunded and unsecured promise to pay money or property in the future. An RSU is that kind of promise until shares are delivered, so the tax event generally waits for delivery. Whatever the label, how a specific award is taxed depends on its terms, so check the plan.

Double-Trigger RSUs at Private Companies

An RSU at a private company has a problem: the holder could owe tax on shares they can't sell. Cooley's IPO practice says private-company RSUs are typically structured as "two-tier" or "liquidity event" RSUs so that vesting and settlement, and so taxation, happen only when there's liquidity to cover tax withholding. The first requirement is typically service-based. The second is a liquidity event such as a change in control or an IPO, which must occur before the RSU expires. Both must be met for the RSU to vest.

That's what "double trigger" means: time plus a liquidity event. If the event never comes, the units can expire worth nothing.

Why Early Stage Uses Options and Later Stage Uses RSUs

This pattern is reasoning, not a statistic. Treat it as a tendency with exceptions.

Early on, shares are cheap and uncertain. A strike set at a low common-stock valuation lets an employee buy in at a small price, and the award gains value only if the company grows. For a company with little cash, that's an affordable way to share upside.
Later, the strike stops being cheap. As the valuation climbs, so does the strike on new grants. A hire joining at a high price needs a much larger jump to profit, and a flat or falling price can leave the option underwater. That makes options a weaker retention tool.
RSUs keep value in flat markets. Because there's no strike, an RSU is worth something as long as the shares are. That's why mature private companies and public companies lean on them.
Double-trigger structures solve the tax problem. Tying settlement to liquidity removes the tax bill on shares nobody can sell yet.

A Worked Example (Illustrative)

The numbers below are made up to show the mechanics. They aren't data from any real company.

Say a company grants one employee 10,000 options with a $1.00 strike, and grants another 2,500 RSUs. Both vest on the same schedule.

Share price at vesting	Option value (10,000 at $1.00 strike)	RSU value (2,500 units)
$0.60	$0 (underwater)	$1,500
$1.00	$0	$2,500
$5.00	$40,000 spread, before paying $10,000 to exercise and any tax	$12,500, before tax

At $5.00 the option grant is worth more on paper because the holder controls four times as many shares. At $0.60 it's worth nothing while the RSUs still have value. The option grants more upside per unit, and the RSU grants more certainty.

Key Facts: Stock Options vs RSUs

An option is the right to buy shares at a fixed strike; an RSU is a promise to deliver shares once vesting conditions are met, with no purchase price (Cooley IPO GO).

For a nonstatutory option, the exercise price may never be less than fair market value at grant (26 CFR 1.409A-1).

ISOs generally trigger no regular income tax at grant or exercise, though AMT may apply (IRS Topic 427).

RSU taxes are generally due on settlement, and private-company RSUs are typically double-trigger (Cooley IPO GO).

A common vesting convention is four years with a one-year cliff (WilmerHale).

An underwater option has no value to exercise; an RSU keeps the value of the shares.

Taxes at a High Level (US)

Options. The IRS's Topic 427 says that for an ISO you generally don't include any amount in income when you receive or exercise the option, though alternative minimum tax can apply and special holding periods matter. For an NSO whose value isn't readily determinable, you include the fair market value of the stock received, less what you paid, in income when you exercise. When you later sell the shares, the IRS says you generally treat the gain or loss as capital gain or loss.

RSUs. As covered above, tax generally follows settlement, when shares are delivered. The exact income amount and withholding method depend on the plan and the company's settlement choice.

Outside the US. Many countries tax equity awards on different timing and different rules. If your team is international, get local advice before designing the plan.

Restricted Stock and the 83(b) Election

Restricted stock is not the same as an RSU. With restricted stock, shares are actually transferred up front, subject to vesting. Section 83 lets the recipient elect to include the property's value in income at transfer instead of at vesting, and the election must be made not later than 30 days after the transfer. Founders often meet this in the context of founder equity.

An RSU, by contrast, is a promise of shares in the future, not a transfer of shares today. Because of that, the usual 83(b) election generally doesn't fit RSUs, which is a common source of confusion. Confirm with a tax adviser for a specific award.

What Each Does to the Cap Table

Both awards eventually become shares, and both dilute existing holders. Options come out of a reserved pool and increase the share count only when exercised. RSUs increase it on settlement. Either way, model granted and unissued awards in the cap table so the dilution is visible before the next round. Acquirers also look at both types when pricing a deal. See also acqui-hire deals, where equity treatment is a negotiated point.

Common Mistakes

Comparing grant sizes directly. 10,000 options and 2,500 RSUs can be intended to be worth roughly the same. Compare the value under a few share-price scenarios, not the counts.
Ignoring the strike. Two option grants of the same size are very different if one was struck at a much higher price.
Forgetting the exercise cost. Exercising needs cash for the strike plus any tax, which is a real hurdle at a private company with no market for the shares.
Missing the post-termination window. Leaving a company starts a clock on vested options, and for ISOs that clock is about three months.
Assuming RSUs are tax-free until sale. RSU taxes generally arrive at settlement, even if you can't yet sell.
Treating restricted stock and RSUs as the same thing. Their tax elections differ.

Frequently Asked Questions about Stock Options vs RSUs

What's the main difference between stock options and RSUs?

An option is the right to buy shares at a fixed strike price, so you pay to acquire them. An RSU is a promise to deliver shares once vesting conditions are met, with no purchase price.

Which is worth more, an option or an RSU?

It depends on the share price and the strike. An option is only worth the gap between the share price and the strike, and nothing if the price is below it. An RSU is worth the full share price, so companies usually grant fewer RSUs than options for a similar intended value.

Why do startups usually grant options instead of RSUs?

Early on, the strike is set at a low common-stock valuation, so options are cheap to grant and reward growth. Private-company RSUs also need a double-trigger structure so employees aren't taxed on shares they can't sell, which adds complexity.

What is a double-trigger RSU?

It's an RSU that vests only when two conditions are met: a service-based requirement and a liquidity event, such as a change in control or an IPO. Cooley's IPO practice says private-company RSUs are typically structured this way so taxation happens when there's liquidity to cover withholding.

How are options and RSUs taxed in the US?

ISOs generally aren't taxed at grant or exercise, though AMT can apply. NSOs without a readily determinable value are generally taxed on the spread at exercise. RSU taxes are generally due when shares are delivered at settlement. Rules differ outside the US.

What happens to my options if I leave the company?

Unvested options usually stop vesting, and vested options typically have a limited window to exercise. For ISOs, the statute requires employment until three months before exercise, so about three months after leaving. Your plan and grant agreement set the real terms.

Can I file an 83(b) election for RSUs?

The 83(b) election applies to property transferred subject to vesting, usually restricted stock, and must be filed within 30 days of the transfer. It generally doesn't fit RSUs because no shares are transferred at grant. Confirm with a tax adviser for your award.

About the author

Brian Tr

Co-Founder & COO

Brian Tr is Co-Founder and COO of Rework, with 12+ years in B2B go-to-market and operations. Brian scaled Rework from 0 to 10,000+ B2B customers across CRM and productivity tools. Brian writes for founders and owner-CEOs: startup fundamentals, founder-led and family businesses, partnerships, and how SaaS, marketplace, AI and EdTech companies grow.

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