What happens to unvested stock options or RSU when a company is acquired.

Mergers and acquisitions can have a big impact on unvested stock options. If you're an employee with stock options, restricted stock units or some other type of equity compensation, you'll want to know what could happen when a company is bought. Here are a few possible outcomes for stock options after a merger, acquisition or sale of a company.

If you are holding stock options or RSUs and a company is acquired or a merger goes through, then this can have an impact on the equity you hold. Many people find out that they qualify for these shares too late. This can happen if an employee joined the company after the vesting period, or because they had become eligible for the options but were not a member of the board of directors. The type of equity and whether your grant is vested or unvested are main factors.

Stock options, Restricted Stock Units (RSUs), and other types of equity compensation usually carry a vesting schedule. This means that you are only fully entitled to benefits after a certain period of time has passed. The length of time depends on the terms of your company’s equity plan and any individual agreements with your employer. Once you have vested in stock options or RSUs that were granted by one company, and then those same shares are acquired by another, things become more complex.

What does this mean for employee stock options or restricted stock units?

Vested options are usually fully exercisable immediately. What happens to unvested stock options depends on how the company is being acquired. If a merger or acquisition results in the absorption of another company, vested stock options may be converted into an equivalent number of shares from the surviving company and serve as part of a new plan. Unvested stock units may be kept as is or canceled under certain circumstances, depending on the terms of your agreements.