RSU's in a pre-IPO / Private company

T

thos

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Hi all,
I understand tax obligations on share options, and RSUs in a public company, having had both, but I'm a bit confused as to how an RSU works in a private pre-IPO company and how this is dealt with from a tax perspective at time of vesting.

My understanding is that the typical 'benefit' of an RSU is that it is taxed at source at the time of vesting, and that the tax is looked after by the employer usually by selling shares to cover the tax bill.
But for an RSU in a private company - how do revenue calculate the value of the share? How does the employer look to fund the tax bill given there is no market to sell the shares?

Confused.

Tom
 
With an RSU the employer is required to operate PAYE on the value of the share at time of allotment of the share. A 'sell to cover' arrangement is normal for a quoted company so that the employee doesn't take a hit for the tax on the share award and effectively pay the tax out of their net salary.

The process is the same for a private company and the employer is required to operate PAYE on the value of the shares at time of allotment. The requirement to calculate the value of the share through RSUs is on the employer and standard share valuation rules are used. The Revenue don't value shares and, to the best of my knowledge, don't have a share valuation department anymore. Share valuations are outsourced to experts on the Revenue share valuation panel where required. The employer is required to deduct the tax on the RSU from the employee from their after tax earnings. This means that the employee may well have a substantial reduction in their net salary in the month(s) in which the RSUs vested.

This is typically the reason why share options are often used rather than RSUs in pre-flotation private companies. However, for U.S. companies with Irish employees share options may not be available
 
Switching to RSUs is usually done soon before a liquidity event (IPO, acquisition).

Usually there is a "double trigger" vesting condition for RSUs in private companies. This means that you have the usual time based trigger (eg. 25% vesting per year) *and* a liquidity based trigger (eg. IPO). This means that the RSUs will not vest until the liquidity event, so there's no tax burden on the employee until the shares are actually sellable, at which point it works the same as in a public company.
 
Does that 'double trigger' have any dependency on anything with Revenue? I know the UK seems to have a 'readily convertible asset' definition which helps support this scenario.
 
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