SEC No-Action Letter on RSUs in Private Companies Says RSUs Do Not Count Under Shareholder Limits

The SEC has issued a no-action letter to the law firm of Fenwick West saying that restricted stock units are not subject to the 500-shareholder limit that, if met or exceeded, requires a private company to comply with reporting requirements for public companies. A prior no-action letter to Facebook also came to this conclusion, but with this letter to a law firm, the ruling has more universal application.

Restricted stock units (RSUs) provide that an employee is granted the right to actual shares but must meet specific vesting requirements before the shares can actually be granted. Because RSUs only represent potential shares, they will not count as if the shares are already owned.