Restricted Share Units (RSUs) For New Zealand Employers

If you’re trying to hire (and keep) great people in New Zealand, you’ve probably noticed the market’s changed.

Salary is still important, but many employees also want a real sense of ownership - especially in startups and growing businesses where everyone’s working hard to build something valuable.

That’s where restricted share units (RSUs) come in. RSUs can be a powerful way to align your team with your growth goals, but they also come with legal, tax, and admin considerations that are easy to underestimate.

In this guide, we’ll break down how RSUs work in New Zealand, what you need to decide as an employer, and the key documents you’ll want in place so you’re protected from day one.

What Are Restricted Share Units (RSUs)?

Restricted share units (RSUs) are a type of employee equity incentive where you promise to deliver shares (or sometimes a cash equivalent) in the future - usually once certain conditions are met.

Think of an RSU as a contractual entitlement, not an immediate shareholding.

• “Unit” means it’s not a share yet (it’s a right to receive a share later).
• “Restricted” means the employee doesn’t receive the shares straight away - there are conditions (like time-based vesting or performance milestones).
• “Share unit” means the future benefit is connected to shares in your company.

Once the restrictions fall away (for example, the employee completes 12 months of service or hits a KPI milestone), the RSU typically vests. After vesting, the employee usually receives the shares (or the value of shares), depending on how you structure the plan.

Why Employers Use Restricted Share Units

RSUs are popular with growing businesses because they can:

• support retention (employees are more likely to stay until vesting);
• align incentives (your team benefits when the business grows);
• help you compete for talent where you can’t always match big-company salaries; and
• create a consistent equity framework for rewarding high performers.

That said, RSUs aren’t “plug and play”. Your plan needs to fit your company structure, cap table, and long-term strategy.

RSUs Vs Share Options Vs Share Vesting: What’s The Difference?

Employers often mix up RSUs with other equity arrangements. The differences matter - especially for tax timing, dilution, and what happens when someone leaves.

Restricted Share Units (RSUs)

• The employee receives shares in the future once conditions are met.
• Employees usually don’t pay an “exercise price” to get the shares (unlike options).
• Because the shares are granted when the RSU vests (or shortly after), RSUs can be simpler for employees to understand - but they can create employer admin and tax complexity.

Share Options

• The employee gets a right to buy shares at a set price (often called the “exercise price”).
• Options can be attractive when you expect strong growth - but employees may need cash to exercise.
• Options are often used where the business wants to delay actual share issuance and manage dilution until later.

Share Vesting (Founder Or Employee Share Vesting)

Share vesting usually involves issuing shares upfront (or agreeing to issue them) but making them subject to “reverse vesting” or buy-back conditions if the person leaves early. This is often documented via a Share Vesting Agreement.

• The person may become a shareholder earlier.
• The company (or other shareholders) usually has clawback/buyback rights if they leave before vesting.

If you’re not sure which model suits your goals, it’s worth stepping back and looking at what you’re trying to achieve: retention, reward, aligning incentives, raising investment, or all of the above.

How Do Restricted Share Units Work In Practice For NZ Employers?

RSUs can be structured in different ways, but most employer RSU plans include the same building blocks.

1) You Set The Vesting Conditions

Common vesting structures include:

• Time-based vesting (e.g. 25% per year over 4 years, often with a 12-month “cliff”);
• Performance vesting (e.g. vesting when revenue targets, product milestones, or project goals are met); or
• Hybrid vesting (a mix of both time and performance).

From an employer perspective, this is where you protect the business. If vesting terms are vague, you’re more likely to end up in disputes about whether conditions were met.

2) You Decide What Happens At Vesting (And After)

Once RSUs vest, you’ll typically need to decide (and document) what the employee actually receives:

• New shares issued by the company (dilution occurs);
• Existing shares transferred from a founder/shareholder (no dilution, but requires willing sellers and clean mechanics); or
• A cash equivalent (less common in small businesses, but sometimes used where share issuance is impractical).

You’ll also want clear rules around:

• dividends (usually RSU holders don’t get dividends until they become shareholders);
• voting rights (typically none until shares are issued); and
• sale events (what happens to unvested RSUs if you sell the business?).

3) You Manage Leavers (This Is Where Things Often Go Wrong)

A big reason employers implement RSUs is retention - so leaver rules are crucial.

Your plan should spell out what happens if someone leaves:

• before vesting (commonly: unvested RSUs lapse automatically);
• after vesting but before shares are issued (you’ll want clarity on timelines and any conditions);
• good leaver vs bad leaver treatment (for example, resignation vs termination for serious misconduct); and
• notice periods and garden leave interactions (especially for senior staff).

This should also line up with your core employment documents. If your incentives promise one thing but your employment agreement is silent (or inconsistent), you’re creating risk. A tailored Employment Contract can help ensure your RSU plan and employment terms work together.

What Laws And Compliance Issues Do RSU Plans Raise In New Zealand?

RSUs sit at the intersection of employment, company law, financial markets compliance, and tax. The “right” setup depends on your business, so this is one of those areas where getting advice early can save you expensive clean-up work later.

Company Law: Issuing Shares And Managing Your Cap Table

If RSUs will be settled by issuing shares, you need to make sure your company is legally able to issue those shares and that the process is correctly approved.

For many NZ companies, that means checking:

• your constitution (if you have one);
• your shareholders agreement (if you have one);
• your share classes and shareholder rights; and
• any pre-emptive rights or transfer restrictions.

It’s very common for founders to implement employee equity and only later realise they’ve created conflicts with investor-style protections (or even informal promises between founders). Getting your Company Constitution and Shareholders Agreement aligned with your RSU plan is one of the best ways to prevent disputes down the track.

Financial Markets Conduct Act (FMCA): Employee Share Scheme Offer Rules

If your RSUs (or the shares delivered on vesting) are being offered to employees, you should also consider whether the offer triggers compliance obligations under the Financial Markets Conduct Act 2013 and related regulations.

Many employee equity offers can be made under exemptions or specific employee share scheme settings, but the rules are technical and depend on your structure, who is eligible, and what disclosures you provide. Getting this wrong can create regulatory risk - so it’s worth checking your FMCA position before you roll out the plan.

Employment Law: Clear Terms, Fair Processes, And Avoiding Disputes

Even though RSUs are “equity”, they’re usually offered in connection with employment - which means employment law principles still matter.

In practice, that means:

• your RSU offer should be in writing and not misleading;
• your vesting and leaver rules need to be clear and consistently applied;
• you should avoid “on the fly” changes without proper consultation; and
• you should consider how incentives interact with performance management and termination processes.

If you have senior employees or contractors involved, you’ll also want to think carefully about classification and who is actually eligible to participate.

Tax: Employee Share Scheme (ESS) Issues

In New Zealand, employee equity incentives can trigger tax obligations under the employee share scheme (ESS) rules. The details depend on how the plan is structured, when the benefit is treated as received, and what restrictions apply.

Because tax outcomes can change depending on the design, it’s smart to coordinate your legal and accounting advice. As an employer, you want clarity on:

• when the employee may be treated as receiving taxable income (often around vesting/issue, depending on the restrictions);
• how share value is determined (especially for private companies);
• whether any employer reporting and/or withholding obligations apply in your specific circumstances; and
• how you’ll explain the tax position to employees without giving personal financial advice.

Important: Sprintlaw can help with the legal structure and documents, but we don’t provide tax advice. You (and your employees) should speak with an accountant and/or check relevant IRD guidance for the tax treatment of your particular plan.

Privacy: Handling Employee Data In Your Equity Plan

Running an RSU plan usually means handling personal information (identity details, share allocations, vesting status, sometimes tax file details). If you’re collecting, storing, or sharing that information (for example with a cap table platform, accountant, or adviser), you should think about your privacy compliance under the Privacy Act 2020.

In many cases, having a fit-for-purpose Privacy Policy (and internal handling processes) is a practical step to reduce risk, especially as you grow your team and systems.

What Legal Documents Do You Need For A Proper RSU Plan?

A solid RSU plan isn’t just a single document. It’s usually a small “document set” that works together.

What you need depends on your structure, but here are the most common pieces for New Zealand employers.

RSU Plan Rules (The Master Terms)

This is the main document that sets out how RSUs operate across your business. It should cover things like:

• eligibility (who can participate);
• how grants are made and approved;
• vesting conditions and how they’re assessed;
• treatment of leavers;
• how the company handles corporate events (fundraising, restructure, sale);
• board discretion (and limits on discretion); and
• what happens in edge cases (disputes, incapacity, redundancy).

This is also where you can bake in practical protections, like not creating an entitlement to ongoing grants and making sure the plan doesn’t override employment terms unless you clearly intend it to.

Individual Grant Letters (The Offer For Each Employee)

Even with a master plan, you’ll usually document each award in a grant letter, setting out:

• number of restricted share units granted;
• vesting schedule and milestones;
• any performance conditions specific to the employee; and
• any additional restrictions (for example, clawback or forfeiture triggers).

This is especially important when you’re giving different packages to different team members. Consistency in structure (even when amounts differ) reduces the chance of misunderstandings.

Updates To Your Company’s Shareholder Documents

If RSUs will result in employees becoming shareholders, you’ll usually need to align existing documents so new shareholders can be properly “brought in” without causing problems.

That might include:

• making sure your Shareholders Agreement allows for employee shareholders and includes appropriate transfer provisions;
• reviewing your Company Constitution for share issue/transfer mechanics; and
• using a Deed Of Accession so employees formally agree to be bound by shareholder terms once shares are issued.

If you’re planning to raise funds later, investors will often expect these documents to be clean and consistent. It’s much easier to do this work before a raise (or sale) rather than under pressure during due diligence.

Board And Shareholder Approvals

Depending on your company’s governance, you may need board resolutions (and sometimes shareholder resolutions) to approve the plan and each grant, and to approve the actual share issues when RSUs vest.

This isn’t just “paperwork for the sake of it”. Proper approvals help:

• reduce the risk of disputes about whether grants were valid;
• keep your cap table accurate; and
• demonstrate good governance to investors and buyers.

Key Takeaways For Employers Using Restricted Share Units

• Restricted share units (RSUs) give employees a right to receive shares in the future once vesting conditions are met, rather than immediate share ownership.
• RSUs can be great for retention and alignment, but you’ll want clear vesting rules, leaver provisions, and corporate event treatment to avoid misunderstandings.
• RSUs are different from options and share vesting, and the differences affect dilution, employee expectations, and the “mechanics” of issuing or transferring shares.
• In New Zealand, RSU plans can raise company law, employment law, FMCA compliance, and tax issues, so it’s worth getting advice before rolling anything out.
• Your RSU plan should usually be supported by a proper document set, including plan rules, grant letters, and updates/alignment with key shareholder documents.
• Making sure your Employment Contract, Company Constitution, and Shareholders Agreement all work together can prevent costly disputes later.

If you’d like help setting up an RSU plan, updating your shareholder documents, or making sure your employee incentives are legally protected, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.