Equity for Your Team: Choosing Between RSUs, Restricted Stock and Options

Circle LLP · October 2026

Why this matters

The equity instrument you give your team decides three things: when they become owners, when they pay tax, and how much of their upside survives that tax. Most African founders with a US company (usually a Delaware C-corporation) meet these instruments for the first time when a senior hire asks, "What exactly am I getting?"

RSUs, restricted stock and stock options are often used as if they were interchangeable. They are not. Choosing the wrong one, or granting the right one at the wrong time, can leave an employee with a tax bill on shares they cannot sell. This note sets out the differences plainly, reflects the rules as they stand in October 2026, and closes with what we advise founders to do at each stage.

The three instruments in plain terms

Restricted stock is real stock, issued today, that the company can take back (usually by repurchasing it at cost) if the holder leaves before it vests. The holder is a shareholder from day one. It is the natural instrument for founders and the very first hires, when the shares are worth almost nothing.

Stock options are a right to buy shares later at a fixed price (the exercise or strike price), set at the fair market value on the date of grant. The holder owns nothing until they pay that price. Options come in two forms: Incentive Stock Options (ISOs), which carry tax advantages but are available only to employees, and Non-Qualified Stock Options (NSOs), which can be granted to anyone, including contractors, advisers and directors.

Restricted Stock Units (RSUs) are a promise to deliver shares (or their cash value) once vesting conditions are met. Nothing is paid and nothing is owned until delivery. At private companies, RSUs usually carry a second trigger: they settle only on a liquidity event such as an acquisition or IPO, so the employee is not taxed on shares they cannot yet sell.

Side by side

The table below covers US federal tax treatment for US taxpayers. Recipients resident in Nigeria or elsewhere face their home country's rules as well (see the next section).

What it is

RSUs: A promise to deliver shares (or cash) on vesting
Restricted stock: Actual shares, issued now, subject to forfeiture
Stock options: A right to buy shares at a fixed price

Ownership at grant

RSUs: None until shares are delivered
Restricted stock: Yes, but the company can repurchase unvested shares
Stock options: None until exercised and paid for

Cost to the holder

RSUs: Nothing
Restricted stock: Usually the purchase price (often nominal)
Stock options: The exercise price, paid on exercise

Voting and dividends

RSUs: None until delivery; some plans credit dividend equivalents
Restricted stock: Yes, from grant
Stock options: None until exercise

Tax at grant

RSUs: None
Restricted stock: None, unless an 83(b) election is made (tax on value at grant, often nil)
Stock options: None, provided the strike price is at fair market value

Tax at vesting

RSUs: Ordinary income on value at delivery
Restricted stock: Ordinary income on value at vesting, unless 83(b) was made
Stock options: None

Tax at exercise

RSUs: Not applicable
Restricted stock: Not applicable
Stock options: NSOs: ordinary income on the spread. ISOs: no regular tax, but the spread can trigger AMT

83(b) election

RSUs: Not available
Restricted stock: Available, within 30 days of grant
Stock options: Only if options are exercised early, before vesting

Tax on sale

RSUs: Capital gain or loss from the value at delivery
Restricted stock: Capital gain from the value already taxed (grant value if 83(b))
Stock options: NSOs: gain over the value taxed at exercise. ISOs: whole gain over strike is long-term if holding periods are met

If the holder leaves before vesting

RSUs: Unvested units lapse
Restricted stock: Unvested shares are repurchased, usually at cost
Stock options: Unvested options lapse; vested options must usually be exercised within 90 days

Best suited to

RSUs: Later-stage companies with valuable stock
Restricted stock: Founders and earliest hires
Stock options: Employees at seed to growth stage

ISO holding periods: shares must be held for at least two years from grant and one year from exercise. Sell earlier and the gain at exercise is taxed as ordinary income. ISOs that first become exercisable in any year above USD 100,000 (measured at grant value) are treated as NSOs.

What has changed since 2025

Four developments since mid-2025 change how founders should think about these instruments.

1. The QSBS clock now rewards early ownership more than before. The One Big Beautiful Bill Act, signed on 4 July 2025, expanded the Section 1202 exclusion for qualified small business stock issued after that date. Holders can now exclude 50% of the gain after three years, 75% after four and 100% after five, up from a single five-year cliff. The per-company cap rose from USD 10 million to USD 15 million, and the gross-assets ceiling for a qualifying company rose to USD 75 million (Kutak Rock). The clock starts when the holder acquires the stock: at grant for restricted stock, but only at exercise for options and at delivery for RSUs. That makes restricted stock, or early-exercised options, materially more valuable for US-taxpaying founders and early staff.

2. The 83(b) election can now be filed online. The IRS introduced Form 15620 in late 2024 and, from July 2025, allows it to be filed through an IRS online account with immediate confirmation of receipt (Morrison Foerster). The 30-day deadline is unchanged and cannot be extended. Online filing requires identity verification through an IRS account, which most non-US founders without a Social Security number or ITIN will not have; they should still file on paper and keep dated proof of posting.

3. ISO exercises are more likely to trigger the alternative minimum tax from 2026. From 2026, the income level at which the AMT exemption starts to phase out drops back to USD 500,000 for single filers and USD 1 million for joint filers, and the exemption now disappears at 50 cents per dollar rather than 25 (Doeren). Senior US employees exercising large ISO grants should model the AMT before they exercise.

4. Nigeria now taxes gains at income tax rates. The Nigeria Tax Act 2025 took effect on 1 January 2026. Residents are taxed on worldwide income, residence now extends to individuals with strong economic or family ties to Nigeria, and capital gains are taxed at personal income tax rates of up to 25% instead of a flat 10% (EY). The new share exemption (proceeds under NGN 150 million and gains under NGN 10 million in a year) applies to shares in Nigerian companies. A Nigeria-resident employee selling shares in a Delaware company should not assume it applies to them. The United States and Nigeria have no comprehensive double tax treaty, so the sequencing of US and Nigerian tax on the same award needs care.

What we advise at each stage

At incorporation: issue founder shares as restricted stock subject to vesting, and file the 83(b) election within 30 days. The shares are worth almost nothing at this point, so the election costs little or nothing in tax and starts both the capital gains and QSBS clocks.

From the first hire to Series A: grant options from a board-approved equity plan, with the strike price set at fair market value supported by an independent 409A valuation. Give ISOs to US employees and NSOs to everyone else, including non-US staff, contractors and advisers. For key early hires, consider allowing early exercise so they can make their own 83(b) election while the spread is small.

Once the stock is valuable: consider RSUs, usually with a liquidity-event trigger, when the exercise price of an option would be too high for employees to pay. Expect investors to ask about the dilution and accounting cost before you switch.

For a team in Nigeria or elsewhere in Africa: design the plan around where people actually live and pay tax, not only around Delaware. Settle in advance how each award will be taxed locally, how employees will fund an exercise price in foreign currency, and how they will receive sale proceeds. A short local-law supplement to the US plan usually handles this.

The takeaway

The best instrument is the one that matches your company's stage and your team's tax residence. Restricted stock rewards those who commit when the risk is highest; options carry most teams through the growth years; RSUs suit a company whose stock is already worth a great deal. Get the paperwork right at grant, because most of the costly mistakes we see (a missed 83(b), a strike price without a valuation, a plan that ignores where employees live) cannot be fixed later.

Circle LLP advises African founders on US incorporation, equity plans and cross-border structuring. If you are setting up or reviewing an equity plan, we would be glad to help.

General Information, not legal advice.

Sources

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